No VAT on gold and diamonds for wholesalers

CABINET DECISION WILL STIMULATE INVESTMENT IN PRECIOUS METALS SECTOR

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 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.

The removal of VAT on precious metals trade at the business-to-business level comes into immediate effect. The 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 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.

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 UAE’s jewellery retailers and shoppers will receive some much needed relief with the partial easing of value-added tax (VAT) charges on all wholesale deals in gold and diamond.

It is now up to the retailers to show how much of their savings from wholesalers will be passed on to shoppers. Industry sources say even a partial cost benefit could help improve shopper sentiments after an extremely difficult four months.

“We are hopeful the new direction will help to keep Dubai competitive when it comes to gold prices,” said Shamlal Ahmad, managing director — International at Malabar Gold & Diamonds. “The government has taken a positive step to protect the [jewellery] industry which has been built up over such a long period.”

Yesterday, the Dubai rate on 22k was Dh148.5 a gram and Dh158 on 24k. Gold industry sources had been expecting the UAE government to take a decision on the VAT structure.

In particular, they emphasised that with VAT and the 5 per cent import duty on jewellery, the price advantages from buying gold in the UAE had lost its glitter.

And that this was the same for both domestic buyers and visitors wanting to pick up gold jewellery or a diamond ring.

More clarity

“The industry will await more clarity on VAT benefits at the retail level,” said Cyriac Varghese, general manager at Sky Jewellery.

“But the cabinet review announced shows that the government has removed a complex structure that involved bullion suppliers, manufacturers, goldsmiths and all the way up to retailers.

“However, as the draft conveys, no major benefit has been passed directly on to customers. We remain hopeful future initiatives will address the retail level.”