IMPACT OF VAT ON GOLD
VAT in the UAE was imposed from January 1, 2018 according to which VAT would be imposed on investment gold, silver and platinum jewellery with less than 99% purity. Further it was decided that VAT would be applicable on the whole jewellery piece rather than on the making costs that was charged by the goldsmiths. It was also decided that there would be no applicability of VAT on the metals with more than 99% purity.
PROPOSAL BY THE FEDERATION OF GCC CHAMBERS OF COMMERCE AND INDUSTRY
In the month of March,2018 the Federation of GCC Chambers of Commerce and Industry had made a proposal calling for a review of 5% VAT on jewellery. They had asked to either exempt gold from the purview of VAT or to either levy tax on the making charges rather than a single piece in order to reduce the cost of the product. This proposal has been made in order to revive the sales of the wholesale jewellery sector since only 10% of the gold that is imported into Dubai is consumed locally and the rest is re exported.
EXEMPTION OF VAT IN BUSINESS TO BUSINESS TRANSACTIONS FOR GOLD/VAT TREATMENT FOR GOLD AND DIAMONDS
In order to recover from the declining sale of gold, the UAE Cabinet adopted a law in order to introduce VAT Reverse Charge Mechanism in the month of May,2018 for the investors in gold and diamond as well as precious metals. The proposed changes mean that VAT would be levied only on the making charges ( value addition) and not on the gold value.
VAT TREATMENT FOR GOLD AND DIAMONDS
Where the business supplies gold or diamonds to a VAT registered recipient and the recipient purchases the goods in order to either resell , produce or manufacture gold and diamond based products, then the supplier would not be required to account for VAT on such sales or report in its own VAT return.
The VAT registered recipient would instead be required to account for tax and to include the output tax which is due on the supply on its VAT return. The recipient would further recover VAT on the supply on the same VAT return which would be subject to the normal input tax recovery position. Thus as a result of it, the fully taxable business would purchase gold and diamonds for resale, production or manufacture and would not make payment of VAT which is due on the supply.
CABINET DECISION No 25 of 2018 ON THE MECHANISM OF APPLYING VAT ON GOLD AND DIAMOND BETWEEN REGISTRANTS OF THE STATE
The Ministry of Finance had published a Cabinet Decision No 25 of 2018 on the mechanism of applying VAT on gold and diamond trading as a principal component that are traded between taxable persons in the UAE which was implemented on 1st June, 2018. This has been implemented in order to provide relief to the gold and diamond merchants who have been dealing in high value commodities at export and have been facing significant cash flow impact due to the payment of input VAT on their purchases. This decision has however been applicable for gold and diamond merchants who further resell, produce or manufacture gold or diamond products.
WHAT HAS BEEN THE IMPACT OF VAT ON GOLD?
Before the 5% Value Added Tax was to be imposed in January, there was a boost in the sale of gold in December. However after its implementation the 16% year on year gain in fourth quarter demand could not rescue the market from a fourth consecutive annual decline since the demand had fallen to 42.8 tonnes.
In the first quarter year , the demand of gold jewellery in UAE had fallen by 23% as per the reports published by the WGC. Whereas as per the World Gold Council figures released on Thursday, the UAE gold jewellery demand in the second quarter fell 24% to 8.8 tonnes from 11.7 tonnes for the same quarter last year. In the first half the demand of gold in UAE fell more than 25% to 18.9 tonnes from 25.3 tonnes for the same period last year.