VAT on UAE jewellery: A golden opportunity

Rising number of tourists expected to drive jewellery sales

For a common consumer, Dubai gold is attractive for its purity, standard, variety and competitive pricing compared to other markets. That is why the large population of expatriates from more than 180 nationalities living in the UAE prefers to buy gold in Dubai rather than their own countries.
States across the Gulf Cooperation Council (GCC) region have agreed to collect a 5 per cent VAT on non-essential luxury goods from January 2018. An estimated Dh12 billion will be generated by the VAT in the first year in the UAE.
While ruling out any major impact of VAT, retailers and consumers say that gold is a commodity that has great value and people prefer to invest in.
"VAT should not have a significant impact as it is a standard practice in most countries and consumers are used to it. Tourists are a significant portion of jewellery customers and they may get their VAT refunded at the time of exit from the UAE or the GCC," says Karim Merchant, group CEO and MD of Pure Gold Jewellers.
However, some stakeholders believe the final legislative framework for VAT could give some clarity for efficient operational purposes.
"We are still awaiting clarity on the method of calculations for VAT in the jewellery industry. We are certain that the visionary leadership in the UAE will take a decision which will be favourable for the industry and retail in general," says Shamlal Ahamed, managing director - International Operations, Malabar Gold & Diamonds.
Reflecting the general sentiments he says that Dubai's position as a preferred destination for gold and jewellery purchase will not be affected.
"The brand Dubai has been built over a period and is very strong, especially for the jewellery lovers in the GCC and Indian Sub-continent," Ahamed says.
As several European, Asian and African countries have introduced VAT long before, the expat community in the UAE are familiar with it and its quite higher rates.
"India is imposing a new GST on jewellery too, this may prompt Indian tourists to buy from the UAE," Merchant says.
Brian Conn, VAT partner, BDO, says the demand for gold has always been strong and the introduction of VAT is unlikely to lessen it.
"However, VAT will push up the price of jewellery and even at the relatively low rate of 5%, it may have an impact on retail sales," he says.
Conn says that there are indications that very pure investment gold will be VAT-free and this will be helpful to the investment markets but it will not help at the retail level.
"The VAT increase may have an effect but I believe the tourist market will stay strong," he says.
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 specialise 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 do not expect a negative impact on sales, on the contrary, we expect that we will see more customers," he says.
He says VAT on luxury items is a common practice around the world and customers will get 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.
He says that the making charges in Dubai are already the lowest compared to other countries.
"I don't see any decrease in making charges. However, we will do the needful after analysing the sales," he says.
- riaz@khaleejtimes.com