India 3% GST move adds to the lure of Dubai gold
India's move to tax gold at a rate of three per cent under an impending nationwide sales tax is expected to give an unexpected fillip to gold and jewellery business in the UAE, traders and analysts said.
While the gold trade in India heaved a sigh of relief at the lower-than-expected Goods and Services Tax on the precious metal, in Dubai, jewellery traders welcomed the move as positive, arguing that it would make domestic jewellery market more price competitive.
The three per cent GST on gold announced on Saturday by the Indian government, lower than industry expectations of around five per cent, will come into effect on July 1 and will replace a number of federal and state levies.
"With gold prices in India set to go up slightly following the rollout of GST next month, the UAE's thriving jewellery trade will emerge more attractive vis-a-vis India and other consumer markets, at least until the introduction of a five per cent VAT [value added tax] across the GCC," said Chandu Siroya, vice-chairman of Dubai Gold & Jewellery Group, a body representing the retail and wholesale gold trade.
The UAE and other GCC countries are pressing ahead with their path-breaking tax reforms to be implemented by January 2018, when a uniform region-wide five per cent tax will be imposed on most goods with the exception of several food items and other essential services.
"We don't yet know exactly the full impact of five per cent VAT on local jewellery trade. We are waiting for further clarity whether such a tax is refundable at the airport for both tourists and expatriate residents. If the five per cent VAT is refundable for both tourists and residents, gold and jewellery trade in the UAE will continue to glitter by benefiting from the new price advantage in the long-term," said Siroya.
Joy Alukkas, chairman of Joyalukkas Group, said the five per cent GST is not only a welcome relief for traders in India, who have been anticipating a higher tax rate, but also for Dubai jewellery trade, the key overseas market for India jewellery buyers.
"For jewellery consumers in India, a three per cent GST will result in a half-per cent price hike. They are currently paying one per cent excise duty and 1.5 per cent VAT on gold. With the GST coming into force, it will be three per cent total," Alukkas said.
"However, when compared to jewellery purchased from Dubai, Indian market will be 13 per cent costlier when the customs duty of 10 per cent will be added to three per cent GST, making the lure of Dubai and other Gulf markets all the more tempting," said Alukkas.
MP Ahammed, chairman of Malabar Group, said the decision to fix GST on gold at three per cent is appreciable as it is lower than five per cent or more the industry was expecting.
Kerala Finance Minister Thomas Isaac had made a case for five per cent tax on gold instead of one per cent being demanded by industry on the premise that the precious metal is not an essential commodity.
"It is a luxury product and is not an essential commodity. What is the principle or idea of tax being imposed on it at 1 per cent rate? It is not a commodity for the poor," the minister was quoted as saying.
Ahammed said a uniform three per cent tax on gold in India would have a good impact for the gold jewellery trade in the UAE. "We expect more Indian tourists will travel to Dubai, the City of Gold, to buy jewellery to take advantage of competitive price."
Announcing the widely speculated tax rate on gold, Indian Finance Minister Arun Jaitley said in New Delhi after a meeting of the GST Council that it was after keeping various factors in mind the government had finally reached a consensus of taxing gold at three per cent.
Under the GST tax regime, apart from gold jewellery, silver and processed diamonds will be taxed at three per cent, while the tax on rough diamonds will be 0.25 per cent.
According to Jaitley, the landmark tax reforms would create one of the world's biggest single markets and make commodities cheaper and tax evasion difficult.
In India, the world's second-biggest gold consumer, the gems and jewellery industry welcomed the tax rate, saying it will help the sector become more compliant and mature.
Currently, the industry pays taxes around two to 2.5 per cent; so three per cent is almost as good as no impact. "With this taxation, many unorganised players will be encouraged to enter organised trade," precious metals analysts said.
Indian Prime Minister Narendra Modi's government is pinning hopes on the GST to boost economic growth that slumped to 6.1 per cent in the quarter to March.
The India head of the World Gold Council said the government's decision on gold was an encouraging step and would help stabilise an industry in which millions are employed.
Under GST, the tax on cotton will be five per cent, ready-made garments 12 per cent and hand-rolled Indian cigarettes or bidis 28 percent. Apparel costing less than 1,000 rupees ($15.53) and footwear below 500 rupees will attract a tax of five per cent.
"The 12 per cent tax on ready-made garments and five per cent tax on footwear will also have a positive impact on the UAE's textile market by making it more competitive, traders said.
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