Impact of VAT On UAE Jewellery Sector: A positive Step

Dubai Gold was liked by consumers just because of its design, purity, standard and competitive pricing as the comparison with other markets. More than 180 people, who are living in UAE like to purchase gold from Dubai instead of their own countries.

6 states all over the GCC (Gulf Cooperation Council) mutually agreed to collect VAT at the rate of 5 percent from 1st January 2018 on all non- essential luxury goods. From the introduction of VAT, GCC will be gained Dh12 billion in the UAE in the introduction year.

Current Retail Gold Rate in Dubai UAE
Source: gulfnews.com

As per the retailers and consumers, gold is one of the commodities that people want to invest in and has a great value.

In the words of Karim Merchant, MD of Pure Gold Jewellers and CEO group, “VAT must not have a significant impact on gold as it is a standard practice in most countries and users are habitual about it. Tourists play an important portion for jewellery customers and might their VAT deducted at the time of departure from the GCC or the UAE”.

However, several stakeholders consider that the final legislative framework of VAT could provide some clarifications for the operational purposes.

Managing director of International Operations, Malabar Gold & Diamonds, Shamlal Ahamed, says that “We are eagerly waiting for the methods of calculating VAT in the gold or jewelry industry. We are confident that the experts or higher authorities in the UAE will take a favorable decision which will be beneficial for the gold industry and retail industry.”

Dubai will not be impacted with all this just because Dubai is one of the renowned locations for gold and jewellery.

According to Ahamed, “The Dubai is well renowned for jewelry, gold and has been built a strong image in the GCC region and Indian Sub- continent”.

As per the Brian Conn, VAT partner, BDO says that “The gold and jewellery industry does not effect from the introduction of VAT in UAE because the gold industry has always been strong”. After the introduction of VAT will enhance the prices of jewellery and even at the at the relatively low rate of 5% and which may have the impact on retail sales.

Conn says, “Increase in VAT may have an impact but I consider that the tourist industry will always stay strong”.

Yaser Abu Shaban, CFA, Member of CFA Society Emirates, says VAT is unlikely to hinder demand for jewellery, which is usually an emotional purchase.

“On the other hand, should VAT be imposed on purchases of gold meant for investment, then that could have a negative impact on the Dubai wholesale gold industry and gold refineries. An increase in the price of gold as an investment commodity would make Dubai less competitive,” he says.

Abhijit Achwal, GM at Jewel Corner, says given this small increase, he expects a modest impact on demand.

“Since we specialised in diamond jewellery, we are not expecting any significant impact of this,” he says.

Achwal says, Jewel Corner has always been conscious about the pricing and stands as an affordable diamond jewellery brand”. We are not expecting a negative effect of sales in the Gold industry. We are expecting that we will serve to more customers.

Additionally, VAT on luxury items is a common practice across the world and the users will habitual and used to it in the UAE.

“Dubai is a preferred destination for gold purchase not only because of the pricing but also because of the quality and wide range of variety. I believe it will continue to attract tourists unless prices in Dubai become exceptionally higher than their home country,” Achwal says.

But Chirag Vora, managing director of Bafleh Jewellery, has the contrary opinion, he says in short term it may affect considerably but in long term, it may not. However, he says the tourists’ sales may get affected in long term too.

“Obviously, tourists buy gold in Dubai because of its price, quality, and designs. Since the price is a major factor here, the buying patterns of many tourists may change,” Vora says.

Additionally, the making charges of gold in Dubai is lowest as the comparison with other countries.

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