VAT Impact on Gold Industry in UAE

More than 180 nationalities living in the UAE prefers to buy gold in Dubai rather than their own countries as Dubai's gold has worldwide been associated with purity, quality, pricing and last but not the least wide range of variety at its offering. The industry experts, on the other hand, are bullish on the overall scenario and outlook of the industry post VAT era as well.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.

UAE along with other GCC nations have imposed a five percent VAT on non-essential luxury goods from January 2018. It is estimated that he nation will generate around DH 12 billion to UAE.The Value-Added Tax (VAT) set to be introduced in the UAE from next year is a dampener to the local gold and diamond industry as companies are planning to shift operations abroad, senior industry executives said at a conference in Dubai.

The DMCC chief, Ahmed bin Sulayem urged authorities to be cautious in order to avoid shifting of businesses from the UAE as a direct fallout of VAT.

In spite of the fact that the value of gold as a commodity might increase post VAT, the industry experts and retailers are positive on the matter. Gold as a commodity has long been used a primary source of investment for GCC nationals and even extended to the majority of sub-continent population.

"VAT exists in many countries so most people, especially tourists, are used to it. VAT is relatively less here compared to many other countries so the gold price in the UAE will remain competitive. The UAE jewelry retail is not just about the price, it is more about quality, consumer trust and design. These factors still remain the same. So in the long term, the market will adjust itself," argued Karim Merchant, group CEO and managing director of Pure Gold Group.

Analysts also noted that a surge in jewellery sales is expected in the last quarter with the advent of festival season and 'pre-VAT' buying spree.

"We will probably see a spike in gold sales in the fourth quarter of 2017, followed by a slowdown in the first part of 2018 as the tax is introduced. In the long-term, however, not much of an impact is anticipated on jewellery sales," reasoned Yaser Abu Shaban, member of CFA Society Emirates.

Many jewellers are even working on certain strategies to even after the implementation of VAT, how to make the Jewellery Industry as lucrative as ever. They've strategized and worked upon certain roadmaps to execute their plans to perfection. Some retailers are even ready to go to an extent where they've decided to bear the burden of tax themselves without transmitting it to their customers in order to retain their customer loyalty and affection.

Ravi Shankar, the senior analyst for investment research and analytics at Aranca, said that Dubai is a renowned location for gold and jewellery and has always been strong in terms of sales.

"Tourists purchase gold in Dubai not only because of pricing but also because of the quality and wide range of varieties. They might get back their VAT at the time of departure or exit from the UAE," he said.

Karim Merchant, group CEO and managing director of Pure Gold Group, is confident that prices will remain competitive in the UAE.

"We do not expect customers of any nationality to reduce purchases because of VAT as prices in UAE will remain competitive plus let's not forget the peace of mind that buying from UAE ensures, the customer can rest assured he is buying a genuine product. Also, the variety of designs available in the UAE is second to none," Merchant said.

"Dubai will continue to offer tourists a variety of gold designs at a reasonable markup for workmanship relative to other markets such as Europe and Asia," YaserAbuShaban, member of CFA Society Emirates, said.

"Tourists arriving from these geographies also have VAT imposed in their own countries on jewellery purchases, often at a rate higher than five percent, so in that regard, Dubai should remain competitive even after the imposition of VAT."

Abdul Salam K.P., group executive director of Malabar Group, said the Indian community in particular and other sub-continent nations, in general, will continue to prefer Dubai's gold.

"The gold jewellery industry in the UAE is much cheaper. India has 10 per cent customs duty plus three percent GST on gold jewellery," he said.

Jewelry as an industry is not alone that might face the heat of the VAT rollout in the initial quarters, but a lot depends on the execution and implementation of new taxation reform. Gold might lose its glory for a while but the demand for middle eastern jewellery is going to remain intact and the industry outlook performance seems positive, robust and bullish as it has always outshined the competitive landscape among its peers.