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Dubai: The UAE has rolled back the 5 per cent Value Added Tax (VAT) on gold and diamond sectors at the wholesale level. Retailers will continue to impose 5 per cent on all jewellery transactions taking place at their shops. 

But the move, announced by the UAE Cabinet, could set off a gradual revival in consumer sentiments for gold and diamond jewellery purchases, market sources say. Jewellery retailers would pass on the VAT benefits they receive from wholesalers in setting the price on their pieces. This way, shoppers will receive their share of the benefits. 

UAE’s gold shoppers can expect partial gains from VAT change

The removal of VAT on precious metals trade at the business-to-business level comes into immediate effect. The UAE Cabinet adopted the law to introduce a “VAT reversed charge” mechanism for investors in gold, diamond and precious metals.

Doing so will “contribute to stabilising the gold and diamond sector in the UAE as well as stimulating investment in this sector”, a statement said following the Cabinet decision. 

It comes after exceptionally difficult circumstances in the jewellery retail trade through the first four months of the year. Sources say gold sales are down by 30-40 per cent from a year ago, with the January decline being in the range of 50 per cent. The last major spurt in gold jewellery buying took place in the five days from December 26, 2017, which coincided with the start of DSF 2017.

Under the earlier VAT rules, gold investment bars and loose diamond stones were “zero rated”. But all other transactions, wholesale and retail, came under the 5 per cent VAT regime. 

For Dubai, known for its close association with the allure of gold, the VAT rollback - even though a partial one - will be of particular significance. The 5 per cent VAT plus the 5 per cent import duty had eroded much of the price advantages jewellers had compared to what they were in India and the rest of the subcontinent.