VAT to spare gold bars, price of jewellery to go up

Across the world, countries levy VAT on gold and jewellery in different ways

With the implementation of a five per cent value added tax in the UAE, the price of jewellery will go up at an equivalent rate, denting the reputation of the local market as the world's most price-competitive, industry experts said.
However, the resilient and ever-vibrant jewellery trade hopes that if VAT would be applied only on the making-charge component and not on the value of the precious metal, the tax would have limited impact on the sector's fortunes and its competitiveness.
"As we know, VAT on pure gold will be zero-rated, it would be ideal if it could be levied only on the value addition (making-charge)," said Chandu Siroya, vice-chairman of the Gold and Jewellery Group.
"If this happens, we will still remain as one of the most competitive places in the world for jewellery shoppers," he added.
However, for shoppers from India, the UAE will continue to remain attractive as there has been an increase in gold jewellery prices following the recent roll-out of Goods and Services Tax by New Delhi, Siroya said.
"A five per cent VAT would pose a significant hurdle to the jewellery trade as the sector is already facing challenging times with shrinking margins and increasing costs," said Ravi Prasad, chief executive officer, PAMP Gold LLC.
Trade's expectation that VAT would be imposed only on the value addition - the making-charge component and not on the metal - is therefore relevant given the current market practice where most of the jewellery purchases by retailers from manufacturers and wholesalers is undertaken on a conversion basis with the buyer providing the metal in kilo bar form, said Prasad.
"If VAT were to be applicable on the metal value too, then the value for money as significant motivation to buy gold jewellery in Dubai would be eroded," Prasad said.
While the gold and jewellery trade awaits more clarity on VAT application, precious metal analysts and retailers hope that the competitive advantage of the UAE jewellery market will not be much impacted because of the relatively small tax rate.
"The proposed rate of five per cent on value added services is quite low compared to many other countries and the UAE government is also studying a VAT refund scheme for tourists," said Joy Alukkas, chairman of Joyalukkas Group.
"We don't foresee much change in consumer spending in the long run, so we don't expect much of an impact on sales. We feel the introduction of VAT will be an opportunity for the jewellery sector to further seek excellence and to ensure the continued growth of the industry as well as the customer satisfaction," said Alukkas.
"Dubai is known as the 'City of Gold' because  retailers here offer the best mix of price, choice and quality. Since the anticipated impact of VAT on prices is not very high or unreasonable, we believe it is in the best interest of the country, the businesses and the consumers," said Alukkas.
"We are still awaiting clarity on the method of calculation for VAT in the jewellery industry. The impact depends on calculation method implemented for the jewellery industry. We are certain that the visionary leadership and authorities in the UAE will take a decision which is favourable for the industry as whole and retail in particular," said Shamlal Ahamed, managing director - international operations, Malabar Gold & Diamonds.
Surandar Jesrani, partner & CEO, Morison MJS, said VAT would be applicable on the supply of gold and jewellery in the UAE at the standard rate of five per cent. "However, the supply or import of 'investment precious metals' will be zero rated. Since 'precious metals' are not defined in the Federal Decree Law No. (8) of 2017 on VAT, the soon expected executive regulations of this decree should specify the same. Also the executive regulations shall specify the standards based on which they are classified as being for investment purposes."
"Across the world, countries levy VAT on gold and jewellery in different ways. In some countries, it is on the making charges, in some others bullion is exempted. The UAE gold and jewellery industry is still waiting for a clear signal from the government to gauge the real VAT implications," said Chirag Vora, managing director of Bafleh Jewellery.
issacjohn@khaleejtimes.com