- Price advantage of Dubai gold comes from zero-tax regime on gold bar imports
- For gold jewellery, only a flat tax of 5% applies; other countries have much higher import taxes
- VAT refund for tourists also offered to visitors at the airport
Dubai: If you have no vision of the future, the saying goes, you will be left with memories of the past — and all its problems.
Why are we going all philosophical? Well, because it transpires that this adage holds just as true for the gold business.
To answer the question in the headline as to why do gold rates tend to be cheaper in the UAE, is an assessment that leads to one undeniable conclusion: a bold vision.
Let's break this down. As the emirates saw potential roadbumps, authorities established rules for tax-free gold imports, especially on raw materials such as gold bars.
This immediately translated to a slash in gold rates for retail buyers.
Here's the proof, which can be found when comparing the rate of yellow metal between India and Dubai. A gram of 22-karat gold in Dubai as of November 11 (4.20pm UAE time) was set at Dh166.75 per gram.
At the same moment, the gold rate in Mumbai was Rs3,715 per gram, which is equivalent to Dh190 per gram.
The conclusion? Gold in Dubai is at least 14.45 per cent cheaper than gold in Mumbai.
14.45%Real time price difference of published gold rates between Dubai and Mumbai, with Dubai being lower
But it's not just people in India, or the rest of the Subcontinent, who come to Dubai to buy the honeyed metal. And it's not just about prices, either.
The quality and variety of ornaments on offer has lured many an avid gold lover to shops.
Still, going back to the heart of the wallet. There's also another point to consider. Tawhid Abdulla, Chairman – Dubai Gold and Jewellery Group, explains: “Fluctuations in gold rates do not affect the making charge of jewelley in Dubai."
So why isn't my jewellery cheaper?
“There is no import duty tax on raw materials like gold bars and TT bars,” explains Shamlal Ahmad, Managing Partner of Malabar Gold. Because of this, traders are able to bring in the precious yellow metal from anywhere in the world, tax free.
However, while gold bars don't need any tax to be paid, jewellery imports come with an import duty of 5 per cent. And on the ornaments, a 5 per cent VAT is also applicable.
Now, here is the good news: tourists visiting the UAE and buying gold (or other items) here, can claim a VAT refund at any airport in the UAE.
So effectively, there is only a 5 per cent import tax on gold jewellery, which is very economical compared to rest of the world.
But for jewellery, there need to be certain other steps taken to ensure the gold's purity.
Ensuring gold purity
According to Dubai Municipality, there are 804 registered jewellery shops in Dubai alone.
It is spelled carat outside the United States but should not be confused with the unit used to measure the weight of gems, also called carat.
A gold karat is 1/24 part, or 4.1667 percent, of the whole, and the purity of a gold alloy is expressed as the number of these parts of gold it contains.
Thus, an object that contains 16 parts gold and 8 parts alloying metal is 16-karat gold, and pure gold is 24-karat gold.
To keep traders in check, there’s a high-tech gatekeeper that looks after it.
An array of ultra-modern laboratory instruments with trained technicians are tasked to carry out a strict regime of gold inspections, covering both retailers and wholesalers in Dubai.
As for why take the trouble? It all boils down to a long-term vision and to establish Dubai, and the UAE, into a global trading hub.
A report published in July 2019 shows that the UAE's gems and jewellery market stood at $8.4 billion in 2018. It is projected to grow at a compound annual growth rate of around 8 per cent, to cross $13 billion, by 2024.
To put that in perspective, the entire lot of gold deposits of the Philippines is estimated to be worth $11.6 billion. There are 240 metric tonnes estimated gold left in Philippines mines, based on Philippine Statistics Authority data.
With rising disposable incomes, changing consumer lifestyles, growing e-commerce and organised retail channels, coupled with innovative and premium product launches by leading jewellery players in the UAE, the market is only expected to grow.
It's a rare combination
There are free zones serving all sorts of industries everywhere in the UAE, and in this case, the Dubai Multi Commodities Centre is the free zone for jewellery trade.
So customers benefit, why are the traders doing it?
The UAE has an “open skies” policy. The country has no income tax, in addition to tax-free gold imports for raw materials. It's savings all around.
Besides, says Malabar Gold's Ahmad, "If you take the example of India, the country cannot import from anywhere in the world because the steep import taxes. For example, jewellery from Finland to India come with an import tax of around 24-25 per cent." Together, these elements make for a convincing sell-in-UAE argument.
Some leading jewellery retail chains in the UAE, which have made their mark internationally, are the likes of Joyalukkas, Malabar Gold and Diamonds, Pure Gold Jewellers.
A brief history of jewellers in particular reveals that these are UAE-grown brands.
Take Joyalukkas, for example. It is a household jewellery brand name, especially in India. The company's chairman, Joy Alukkas, a successful jewellery magnate based in the UAE.
Alukkas’ net-worth stands at an admirable $1.3 billion. He is regarded a pioneer in setting the trend for a jewellery chain in the country. He is credited for introducing classic "desi" designs into the local market.
The Joyalukkas group records an annual turnover of $2 billion with a presence in UAE and 10 other countries. Plans are to reach a turnover of $3 billion in 2020 and expand the business to 20 countries with 200 retail outlets.
Malabar Gold and Diamonds also has grown massively in the UAE. The $4.5 billion Malabar Group enjoys a high turnover from its gold and jewellery segment, making up for 85 per cent of the overall company turnover.
As for Pure Gold Jewellers, there are 157 stores with a presence in 12 countries located in the Middle East and Asia. The company records an annual revenue of Dh1 billion per annum.
Pure Gold Jewellers also operates state-of-the-art factories in Dubai, India and China, providing employment to 3,500 people.
The company’s founder and chairman, Firoz Merchant, has plans to expand the number to 250 retail stores by 2020. His net worth is said to run in hundreds of thousands of dirhams. And to think that he achieved all this here in the UAE says a lot about the gold and gemstone industry.
“We are ahead of the game because of the import duty. The other factor why people flock to Dubai to buy gold is because they trust the gold purchased here, whether it is for the quality or the purity. It is indeed very encouraging. Second is that the quality is taken care in this market. The government is doing a lot in terms of quality control,” said Karim Merchant, Group CEO and Managing Director of Pure Gold Group.
How do retailers price their gold rates?
According to Tawhid Abdulla, Chairman of Dubai Gold and Jewellery Group, it's the group that suggests the price for retail gold jewellery in Dubai. This is given to the Group's 450 members who make up 80 per cent of gold and jewellery traders in Dubai. "The price is set as per the mandates set by the Department of Consumer Protection at the Dubai Economic Department."
“The retail price is calculated based on the ounce rate for gold in the international markets and published in local currency to ensure uniformity and transparency,” he said.
He also pointed out that “the making charge is fixed per gram by the retailer and is lower than [in] India and other parts of the world.”
The suggested retail gold rates are updated three times a day according to international markets. These rates are displayed in digital screens (centrally controlled by the Group) in retail stores.
Gold rates: How they are set
Malabar Gold's Ahmad said the rates are fixed based on the dynamic international gold price, which changes almost every second.
“The price[s] available online are applicable for online trading. Whereas the price for physical gold purchase is fixed by bullion dealers incorporating the cost associated [with it]," Ahmad explained.
"For Dubai retail, suggested retail price is recommended by the Dubai Gold and Jewellery Group under supervision from the Consumer Protection Section of Dubai Economic Department (DED), based on the international prices and the overhead incurred in different trade leads. Because the price is very volatile, it [is] fixed three times a day,” he explained.
Ahmad added: “The insurance cost for holding gold stock in Dubai is also cheaper than the rest of the world. With the import duty on raw materials being nil and on gold jewellery minimal, we are able to import from anywhere in the world.
“Because of our price advantage, we are able to import gold jewellery from anywhere in the world.”
Key countries exporting gold and gold jewellery to the UAE are said to be India, Singapore, Italy, Bahrain, Singapore, Malaysia.
“Turkey and Spain jewellery too are getting popular in the UAE.”
Safety and logistics
Alukkas, of Joyalukkas Group, said: “The UAE is definitely the safest country to do gold business. We have a transparent economy and this helps in running the gold business. It is definitely the safest environment to do business.
"Added to this, Dubai is a hub for transit visitors. And they love to see and buy gold from the UAE. It is easy to control your jewellery business in the UAE.”
“The gold market is such that you cannot hold stock for long. It is a high value investment, and so there has to be faster logistics and delivery. Dubai is the best location for that,” said Alukkas.
Merchant, of Pure Gold Group, echoed these thoughts: "We are working in a country where transparency is top. There is transparency in pricing, in the inspections and the gold which you buy and sell. And transparency in the purity of gold you buy. Added to this, the Dubai Municipality is very supportive to the gold industry.”
At the end of the day, all these points boil down to one thing; a bold vision for the future.