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

The implementation of a five per cent value added tax in the UAE will spike the prices of jewellery, denting the reputation of the local market as the world’s most price-competitive.

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. “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. 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.

Courtesy: Khaleej Times