VAT IN UAE: Dubai to remain city of gold

Tourists - used to VAT elsewhere - would be happy to find out that the UAE has one of the lowest rates in the world.

Dubai will continue to shine as the 'city of gold' and its position as a preferred destination for gold and jewellery purchase would not be affected by the implementation of value added tax (VAT), industry experts and jewellery retailers said.
However, jewellery sales could witness a modest fall in the short term that would gradually recover as soon as consumers get used to VAT, they said.
GCC countries have agreed to collect a five per cent VAT on non-essential luxury goods from January 2018. According to an estimate the implementation of VAT will generate around Dh12 billion in the first year in the UAE.
"VAT exists in many countries so most people, especially tourists, are used to it. VAT is relatively less here compared to many other countries so the gold price in the UAE will remain competitive. The UAE jewellery retail is not just about the price, it is more about quality, consumer trust and design. These factors still remain the same. So in the long term, the market will adjust itself," argued Karim Merchant, group CEO and managing director of Pure Gold Group.
Analysts also noted that a surge in jewellery sales is expected in the last quarter with the advent of festival season and 'pre-VAT' buying spree.
"We will probably see a spike in gold sales in the fourth quarter of 2017, followed by a slowdown in the first part of 2018 as the tax is introduced. In the long-term, however, not much of an impact is anticipated on jewellery sales," reasoned Yaser AbuShaban, member of CFA Society Emirates.
 
Jewellers' strategies
Jewellery retailers are chalking out plans and strategies to remain attractive for the customers.
Arjun Dhanak, director of Kanz Jewellers, said that he is considering measures to reduce costs.
"Jewellery is not just a commodity - it's a luxury good. We will expand our manufacturing operations here in the UAE to bring costs down and at the same time we will bring a unique product offering to our customers. Our customers can therefore expect to get the best in terms of value and designs," Dhanak said.
He is also planning to share the burden of VAT to retain customers' attraction. However, he said that VAT has to be added on making charges to avoid any price shock for customers during the final stages of the billing process.
Echoing the sentiment, Merchant said: "We will focus on the quality of our products, unique designs, customer service, loyalty programmes and retail experience, especially the use of technology in our stores to enhance the shopping experience."
"We often offer zero making charges during special occasions and our making charges are very competitive so it will help customers shopping with us," Merchant explained.
On a contrary note, Chirag Vora, managing director of Bafleh Jewellery, said it would be impossible for any jeweller to share or compensate consumers with the VAT amount. "Lowering the making charges will not even be an option because the cost will be further rising now with new laws coming in place," he argued.
"No one can formulate any strategy to attract individual customer based on VAT because it's a federal law and everyone will have to comply with it. However, one will have to revise marketing strategies in order to keep a competitive edge of Dubai as the city of gold over the world," Vora said.
Talking about Malabar Group's strategy, group executive director Abdul Salam K.P. said that he is waiting for more clarity on the method of calculations for VAT in the jewellery industry.
"We currently operate in other countries where there is taxation, hence we are not new to the concept. However, we will wait for clarity regarding VAT and plan accordingly," he said.
 
EVER WONDERED WHY DUBAI GOLD IS POPULAR?
Dubai gold is famous for its quality, purity, standard, variety and competitive pricing. For that reason, a large number of tourists and expatriates living in the UAE prefer to buy gold in the emirate.
Ravi Shankar, senior analyst for investment research and analytics at Aranca, said that Dubai is a renowned location for gold and jewellery and has always been strong in terms of sales.
"Tourists purchase gold in Dubai not only because of pricing but also because of the quality and wide range of varieties. They might get back their VAT at the time of departure or exit from the UAE," he said.
Karim Merchant, group CEO and managing director of Pure Gold Group, is confident that prices will remain competitive in the UAE.
"We do not expect customers of any nationality to reduce purchases because of VAT as prices in UAE will remain competitive plus let's not forget the peace of mind that buying from UAE ensures, the customer can rest assured he is buying a genuine product. Also, the variety of designs available in the UAE is second to none," Merchant said.
"Dubai will continue to offer tourists a variety of gold designs at a reasonable mark-up for workmanship relative to other markets such as Europe and Asia," Yaser AbuShaban, member of CFA Society Emirates, said.
"Tourists arriving from these geographies also have VAT imposed in their own countries on jewellery purchases, often at a rate higher than five per cent, so in that regard Dubai should remain competitive even after the imposition of VAT."
Abdul Salam K.P., group executive director of Malabar Group, said the Indian community in particular and other sub-continent nations in general will continue to prefer Dubai's gold.
"The gold jewellery industry in the UAE is much cheaper. India has 10 per cent custom duty plus three per cent GST on gold jewellery," he said.
Globally, an international consumer pays VAT at shops and collects a refund on the way back home.
"So far the law has not mentioned any such refund applications. As long as there is a refund policy in place the Dubai gold prices will be cheaper than the local prices back home," Chirag Vora, managing director of Bafleh Jewellery, said.
- riaz@khaleejtimes.com