The UAE Federal Tax Authority’s move to roll back the 5 per cent value-added tax (VAT) on gold and diamonds at the wholesale level will certainly revive the sector. While the consumer will continue to pay VAT on retail transactions, he or she can reap benefits on other costs such as making charges, which normally comprise the highest cost component in retail sales of jewellery. Savings can also be on the actual bullion sourcing, which attracts zero import duty.

The Cabinet move will help restore buyer confidence in the market, which has otherwise faced some resistance. Buyers from the subcontinent — particularly Indians — need assurance to keep investing in bullion, without having to bear extra costs. The VAT rollback in precious metals trade will go a long way in achieving that.

A gradual revival in consumer sentiments for gold and diamond is expected to seep into the industry in the wake of the Cabinet decision.

A statement after the Cabinet adopted the law to introduce the “VAT reversed charge” mechanism, said it will contribute to stabilising the gold and diamond sector in the UAE as well as stimulating investment in this sector.

The move is the latest in a series of measures introduced by the UAE government to ease the way of doing business in the country, particularly at a time of fluctuating oil prices. Although the UAE was one of the few countries in the region in 2017 to see sustainable growth, it has not stopped rolling out initiatives to attract business and investment. Some of them have been done in consultation with the business community. Workshops are held to allow for constructive dialogue and that allows the government to obtain insight into ways to support small and medium-sized businesses and attract foreign investors.

The UAE, and particularly Dubai, has launched several initiatives to achieve this, including the freezing of government fee hikes for three years and the exemption of some firms from fines, besides reducing some operational costs for retailers.

Dubai is well-known for its association with gold sales and wholesalers from other parts of the world find an attractive market here. So the VAT rollback will be of huge significance. The 5 per cent VAT plus the 5 per cent import duty had eroded much of the price advantages that jewellers in the UAE used to have, compared to what they were in India and the rest of the subcontinent.

The VAT rollback for wholesalers will remedy the situation.