The application of a 5% value-added tax on gold jewelery in Dubai is a threat to the status of the city as a world center for the sale of this metal. However, experts believe that the new taxation will not have a decisive impact and still Dubai will remain the city of gold.
The member countries of the Cooperation Council for the Arab States of the Gulf (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) have agreed on the introduction of a value-added tax of 5 % on luxury goods, among which are the gold jewelry.
A measure that could threaten the gold jewelry trade in Dubai, considered the world capital of gold by selling this type of metals. Only in the United Arab Emirates, it is estimated that the new tax could generate nearly 3,300 million dollars a year, which gives an idea of the volume of gold sales made each year in the city.
However, according to experts consulted by local newspaper Khaleej Times, the new taxation will not reduce the volume of gold business in the city. On the one hand, a 5% IVA will continue to allow prices to be competitive, as it is a much lower rate than in other countries, and tourists are used to this taxation.
On the other hand, among the reasons why customers come to Dubai to buy gold, is the quality, design, and trust that inspires the city’s gold industry and the price is not so much of concern.
What they are considering is that sales of the gold jewelry sector will see a slight decline in the short term until the tourists get used to the new tax.
According to Yaser AbuShaban of the CFA Society Emirates, Khaleej Times, “we expect to see gold sales slowdown in the first part of 2018 after the tax comes into effect in the long run give to the jewelry sale.”
For their part, traders seek to minimize the impact of new taxes on their sales and study measures to reduce costs. In the words of Arjun Dhanak, director of Kanz Jewelers, to the local newspaper: “jewelery is not a commodity, but is a luxury item. We will expand our production in the United Arab Emirates to cut costs and provide our customers with a unique product that can expect the best of value and design.”
Some jewelers are even willing to pay a portion of the tax burden, not just to pass it on to customers, and to warn them that it’s best to apply it from the beginning, so customers will not be surprised by the final bill.
Others, however, disagree and believe that it is not possible to cut production costs in order not to have full VAT on customers, as this is a federal law that everyone must follow.
According to Ravi Shankar, Investment Research Analyst at Aranca, tourists are buying gold in Dubai not just for the price, but also for the variety and quality of the pieces, and know that they can claim a VAT refund when they leave the country.
For Karim Merchant, CEO and CEO of Pure Gold Group, prices will remain competitive: “We do not believe that customers will reduce their purchases, as 5% VAT will be charged as prices in the UAE will continue to rise a lot In addition, the peace, security and variety of the designs of the pieces are other factors to consider when making a purchase.”
In contrast, India applies a 10% duty plus a 3% tax on goods and services (GST) on gold jewelery, so the price of gold in Dubai is very competitive for the Indian market, one of the world’s most active market.
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