Dubai: VAT on loose diamonds will imperil the diamond trade Dubai has spent 15 years building, Peter Meeus, Chairman of Dubai Diamond Exchange (DDE) said on Monday.
Speaking at the opening day of the Dubai Diamond Conference, at Dubai Multi-Commodities Centre’s (DMCC) Almas Tower, Meeus launched a stark warning about the state of the diamond trade worldwide: “Winter is coming.”
Meeus said that later this week DMCC representatives would meet with federal officials to try to convince them for giving loose diamonds a zero-per-cent tariff in the UAE VAT, to become active on Jan. 1, 2018.
“That would allow the UAE diamond trade to grow further in the search of excellence,” he said. “The same zero-per-cent tariff is currently the standard in all other diamond centres across the world.
“I’m not really happy to mention this problem in public, in our own conference and in the presence of so many international visitors, but at the same time it has to be said loud and clear: if this challenge is not solved, all that we have done in the last 15 years will have been for nothing.”
Even without VAT looming on the horizon for UAE-based traders, his portrait of the current state of the international diamond trade was bleak.
Alongside slow growth and increasing sales of man-made diamonds, there was a liquidity crisis and a growing insistence on cash sales in an industry previously reliant on credit.
“The question we must ask ourselves is how did a trust-based industry, wholly dependent on trust-based finance, get into such a calamitous reality. Ladies and gentlemen, the writing has been on the wall for quite a while. The lack of any meaningful profitability and the unstable, if not long-term, decline in polished diamond prices have made the repaying of hundreds of millions in debts a question.
“The bottomline is that the diamond manufacturers bought more rough diamonds, paid more for rough diamonds, and sold fewer polished diamonds at lower prices.”
Retail sales of polished stones had grown far below the levels of GDP growth since 2011. Challenges facing the industry also include the small but growing threat of man-made diamonds, he said. In addition, DMCC chairman Ahmad Bin Sulayem pointed out, millennials didn’t seem to be buying diamonds. In his opening speech, Bin Sulayem cited a study showing 37 per cent of millennials didn’t trust brands or big business.
“It’s a different world,” he said. “And it goes beyond just advertising and marketing. What do we as an industry have to change to better appeal to this demographic?”
But Meeus reserved his most dire prediction for the UAE’s plans to impose VAT on loose diamonds, which he said could undo Dubai’s meteoric rise as a diamond hub over the last 15 years — from $300 million (Dh1.10 billion) in trade in 2002 to $26 billion in 2016, putting it behind only Antwerp and Mumbai.
“The announcement of possible VAT on loose diamonds would strongly jeopardise this,” he said. “The possible cost implications of VAT introduction for UAE traders are huge, because in a business where profit margins are very thin, every quarter of a per cent is important to traders handling billions of dollars to decide where to ship. Places like Hong Kong, Panama and Singapore will be considered alternatives if value-added taxes were to be put on loose [diamonds].”
The imposition of VAT by Amsterdam in 1921 led to its eclipse by Antwerp as a diamond hub, he said.