VAT relief for gold on the cards in UAE
Wholesale and retail gold jewellery sales in Dubai plummeted between 30 and 50 per cent in first quarter.
The UAE's gold jewellery trade hopes for a surprise in the form of a tax relief to boost sales that have gone into a dismal tailspin following the introduction of value added tax (VAT) in January.
The trade is waiting for a favourable action from the federal authorities on exempting the value of gold from five per cent VAT.
Trade sources said the proposed changes in the VAT mechanism for the gold and jewellery sector would mean that VAT would be levied only on making charges (value addition) and not on the gold value.
Wholesale and retail gold jewellery sales in Dubai plummeted between 30 and 50 per cent in the first quarter of this year compared to the same 2017 period in the wake of VAT.
Informed trade sources said they hope for a positive official response to their plea for a review on VAT anytime now but the implementation could take time.
"A special tax consideration will be a big boon for the wholesale and retail jewellery trade, which has been hit hard as the price competitiveness that has been the most appealing hallmark of Dubai, the City of Gold, has ebbed away with VAT introduction," a jewellery retailer said.
For the wholesale jewellery trade, the expectation is that VAT will be charged at five per cent on full value but to be implemented via the "reverse charge mechanism".
"This means, there will be no actual payment of VAT on business to business transactions. Under the Reverse Charge Mechanism, there will only be documented entries of five per cent VAT in the books of both buyers and sellers and no payment of the fee," explained the sources that want to remain unidentified.
Since only 10 per cent of the gold imported into Dubai is consumed locally and the rest is re-exported, the wholesale jewellery sector will see a major revival of sales as the emirate reinstate its appeal as the most competitive global jewellery sourcing hub.
As per the proposed concession, there will be a designated freezone: Almas Tower will be declared a 'designated free zone' for VAT. The intention is to implement it with a digital fencing rather than physical fencing. This will enable Almas Tower to obtain all concessions/special treatments that are stipulated for the "designated free zone" as per the Executive Regulations, sources explained.
Dubai Gold & Jewellery Group, the Federation of GCC Chambers of Commerce and Industry, and jewellery groups in Saudi Arabia have been calling for a review VAT on jewellery.
Jewellery demand in the UAE fell for the fourth consecutive year in 2017 to 42.8 tonnes, falling two per cent to a 20-year low, according to the World Gold Council. Gold sales witnessed an unprecedented jump in December as consumers rushed to make their purchases before VAT came into effect.
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