At present, the 5% VAT is applicable to the entire jewellery piece, including the cost of labour and the cost of item itself. The gold and jewellery industry leaders are in talks with the UAE government to limit the applicability of value-added tax (VAT) only to the making charges in order to reduce the product cost. The newly launched tax regime has reportedly decreased the market value as well as the demand for gold jewellery.
The group which included some of the reputed industry seniors, including Chandu Siroya, vice-chairman, Dubai Gold and Jewellery Group (DGJG), approached the government with the issue. Siroya said that the group has requested that the government levy VAT only on the labour component and exempt the actual material cost.
“We are talking to different sources in the government and we are very hopeful about the positive outcome of it. The government will find some solution for us… And we will go back to become a preferred choice,” said Siroya.
Since VAT is a value-added tax, it should be levied only on the value-addition (through making) of the jewellery. If that happens, sales of gold jewellery may again spurt in the UAE market. An increase in the demand for gold jewellery was recorded just before the VAT implementation, which was to avoid paying the increased cost.
“What is important for us is to remain competitive as an industry globally. Even though the underlying value of metal is quite significant, the actual margins are very small. So even 5 per cent VAT can make a big difference. So we and DGJG have made representation on how VAT regime could work and these discussions are ongoing at the moment,” said Gautam Sashittal, CEO, Dubai MultiCommodities Centre (DMCC).
The major issue is of the unavailability of VAT refunds on the re-exports of gold jewellery from the UAE. Sashittal mentioned that most of the jewellery sold in the country is re-exported by individuals. VAT refunds cannot be claimed on such exports, which is the major reason behind the struggles faced by this industry.
The leaders are however optimistic about the outcome of the talks with the government. Speaking at the 7th edition of Dubai Precious Metals Conference held on 9th April, Chandu Siroya said that even though 5 per cent VAT is not much, it is still affecting the industry because most of the jewellery purchased in Dubai is for export purposes and not for local consumption.
“Perception of consumers paying 5 per cent extra in Dubai is different from people paying 10 per cent extra in other countries because countries like India and Singapore have local captive consumption market. Here 90 per cent population is expatriates who buy to take it back to their home countries.
So when they are taking it back to their home country, they have duty to pay and other compulsions. Dubai is not a consuming city but a distribution centre. Hence, this 5 per cent has resulted in damaging the market,” said Siroya.
Siroya explained that Dubai’s economy is greatly different from markets like Singapore and India where local consumption is more whereas the UAE gold is mostly re-exported to other countries.
Talking about the challenges of the industry, he said less and untimely availability of labour, sourcing of gold, online selling, lack of interest in jewellery, advertising and marketing cost, fake jewellery are some other major issues in the growth of this industry.