The VAT (value-added tax) on gold jewellery will likely apply to the entire piece, which effectively means an additional payout of Dh7-Dh8 a gram at today’s prices, according to industry sources. But on gold bars, deemed as investible assets, no such tax will apply. (There will also be no duty on loose diamonds.)
The decision to include gold jewellery under VAT will be spelt out in the Executive Regulation governing the application of value-added tax in the UAE. A draft version of the document was released yesterday. The Regulation defines VAT as the 5 per cent tax imposed on the import and supply of goods and services at each stage of production and distribution, including that is a “deemed supply”. The only exceptions are specific supplies subject to the zero rate and those exempt as specified in the Decree Law.
“Dubai’s gold jewellery trade had made requests for VAT to judged on the value-added portion of a typical jewellery piece, which would be about 30 per cent,” said Joy Alukkas, Chairman of the retail chain that bears his name. “But it is now been decided that there will be no such exemption.
“There is nothing extraordinary in this — it’s how VAT is assessed on gold jewellery in other markets. There might be a slight hesitation on the part of gold consumers when VAT is effected, but that will soon pass. “Malaysia had the same experience two years ago (in April 2015) and gold demand weakened considerably after VAT. But consumers soon started getting back into stores.”
So, what would the VAT be on a typical jewellery piece? Wednesday’s price was at Dh145.50 a gram for 22K.
According to Cyriac Varghese of Sky Jewellery, “If we take another Dh10-1Dh15 in making charges, the VAT at 5 per cent would average about Dh7-Dh8 a gram. At the current price range of Dh140 a gram to Dh150, consumers are relatively comfortable with buying. Even with the additional VAT costs, it shouldn’t prove such a burden on the consumer.”
It has been a tough year for gold and jewellery sales in the UAE. The general sentiments over the economy rubbed off on resident’s gold buying habits as well. But market sources say that Q3-17 sales were helped by decent sized demand associated with the Indian festival of “Diwali” last month.
“Apart from the Diwali buying in 2016, this year’s was the best in four years,” said Varghese. “And 2016 was better only because it fell on a weekend and that brought in more shoppers into stores.”
Until the very last moment of the VAT notification, market sources were hopeful that VAT on gold jewellery would remain exempt or only applied on the value-added piece. This they felt was necessary to keep Dubai’s “City of Gold” status intact. And solidify the impression that when it comes to gold and gold jewellery, the best deals anywhere are in Dubai.
They maintained that this was absolutely vital in getting tourists to keep hitting the gold souqs, especially the Indian, Pakistani and Chinese buyers.
“Before VAT, buying a gram of gold in India and from here comes with an immediate 15 per cent price advantage,” said a market source. “That advantage reduces a bit when VAT comes in.”
Representatives of the Dubai Gold & Jewellery Group had approached government entities to press their case for some sort of benefits. They had provided detailed studies backing up their case. But none of this turned fruitful.