Jewellery retailers on tenterhooks over VAT
The key question is how jewellery will be charged — on the entire piece or just the value-added portion
UAE’s gold retailers are retaining hope that the VAT (value-added tax) on jewellery will be confined to the portion where value has been added and not on the gold component itself.
“The argument is more valid as the authorities are considering exempting the gold bars in pure form from VAT,” said Abdul Salam K.P., member of the board at the group. “The Dubai Gold & Jewellery Group has made this request to the Dubai Government. If VAT is excluded from the gold component, it would have a major say in ensuring Dubai’s the most competitive gold and jewellery market in the world. We should shortly be getting a status on what the VAT will be for jewellery.”
No import duties
Currently, there are no import duties on bullion and loose diamond imports into Dubai, but is at 5 per cent on jewellery. Gold bars and coins are expected to be exempted from VAT.
In typical gold jewellery pieces — favoured by a significant section of consumers here — the gold component averages between 90-92 per cent. These are the pieces that drive volumes across the gold trade. (Then there are the diamondstudded designer pieces that cater to an altogether different clientele, and where the gold component is typically 18k and not the generic 22k.) Now, as per the Gold & Jewellery Group’s proposal, VAT should ideally be imposed on the 8-10 per cent non-gold value addition made to the piece. That would also be a level at which consumers would not feel the impact on VAT surcharges. The other alternative would be to pay VAT on the full price of the jewellery set, but can make for a sharp difference in the showroom prices. And that’s something retailers are dreading against the backdrop of strengthening gold prices.
Gold was trading at $1,321.66 (Dh4,854) yesterday and the lowest since September 1’s $1,318.75. The Dubai price on a per gram basis was at just over Dh150 early yesterday.
But now that it is well past the $1,300 an ounce range, $1,400 is not that remote. For that to happen much depends on how the US economy and the dollar are faring, and the next steps from the Fed.
But UAE jewellery retailers are already seeing $1,300-plus levels playing havoc with consumer demand. Only the period around DSF 2017 in January and the period during and just before Eid managed to see that clear spike in buying. This is why much rides on what the VAT surcharge will be, and especially at a time when bullion prices are on the upside.
If one of the other Gulf markets were to allow VAT on gold jewellery just on the valueadded portion, it could mean some erosion of the UAE’s price advantage.
Nebulous price point
And it would also reduce the price gap between retail prices here and in India, from the current 14 per cent (which includes the 3 per cent GST or the goods and service tax India introduced from July 1. India currently has a 10 per cent customs duty on bullion and 25 per cent on jewellery imports.)
“The Dubai gold trade’s indifferent performance in the last two years was because enough tourists weren’t willing to spend on jewellery,” said Chirag Siroya, Vice-Chairman of Dubai Gold & Jewellery Group. “They are turning extremely sensitive to the gold price and it will take them to absorb the price add-ons. The contribution of domestic shoppers too has been flat or seen a slight reduction.”