The UAE exempts gold from VAT, but the industry has other concerns

Manoj Chakraborty

The government of the United Arab Emirates (UAE) recently announced that it would reverse the value-added tax (VAT) on gold, diamonds and other precious metals in the country. It also introduced the VAT Reversed Charge mechanism for investors in these items. The VAT regime came into force in the UAE on 1 January 2018.

Although transactions in gems and jewellery in the UAE will no longer attract 5 per cent VAT, buyers and sellers are required to record all such transactions and show the records to the authorities upon request. This sector-specific change, the government explained, was made to improve ease of doing business in the country.

“As long as two registered entities are dealing with each other, there is no VAT,” says Kaushik Bhai Tejori, managing director, Tejori Gems. “Under the Reversed Charge mechanism, there will be documented entries of 5 per cent VAT, but no payment will take place.”

This will greatly boost trade within the industry, says Tejori. Big retailers will benefit most, he says, as their saving on VAT will help to improve cash flow in the industry. “I think it’s a good move in the right direction.”

According to Nishit Shah, CEO, La Marquise Jewellery, the decision will improve the business environment, but the impact on the gems and jewellery industry will be minimal. He is more concerned about the 5 per cent import duty on gold and diamond jewellery, which he calls a “serious issue”.

The import duty came into force more than a year ago, and applies to gold and diamond jewellery imported into the UAE for local sale. Typically, no duty is levied on jewellery imported by the UAE specifically for re-export to other parts of the world, which makes up the bulk of the UAE’s jewellery imports.

No relief for consumers

Meanwhile there is no immediate relief for consumers, who will continue to pay 5 per cent VAT on the total cost of any jewellery they buy, rather than on the making charges alone.

According to the World Gold Council, the demand for gold in the UAE has not recovered since the 2008 financial crisis. In 2017, the report says, gold demand dropped to a 20-year low.

Courtesy: Manoj Chakraborty/ Image: ameinfo.com