The UAE Cabinet has adopted a law to roll back the application of a 5 per cent value added tax on the gold, diamond and precious metals market.
State news agency WAM said the step was intended to maintain the country’s ranking on ease of doing business indicators and stimulate transactions in the three categories.
The VAT reversed mechanism will apply to “precious metals such as gold, silver and platinum, used in trade in accordance with internationally accepted standards with a purity of 99 per cent or more” at the wholesale level but not at the retail level.
However, it is still expected to lead to lower prices in stores, which previously enjoyed a price advantage over neighbouring markets like India.
Pure Gold Group founder and chairman Firoz Merchant welcomed the move but said he hoped it would be extended beyond the business to business market.
“One of the major tourist attractions of the UAE is the jewellery sector that generates billions of dollars in revenue every year and by exempting tax, the benefits to the business and the overall economy are immense,” he said.
“I hope that the UAE government extends a similar exemption to the retail sector, which will not only benefit the jewellery retailers but also tourists and consumers”.
The UAE’s gold and jewellery market has gone though a particularly difficult period in the opening months of the year with reports that sales are down 30-40 per cent from a year ago.
Prior to this, the market still remained weak despite a sales surge ahead of the tax’s implementation on January 1.
The World Gold Council said in its 2017 report that gold jewellery demand hit a 20-year low in the country.
Purchases were down 2 per cent from 43.4 tonnes in 2016 to 42.8 tonnes last year, the fourth consecutive annual decline, according to the organisation.
The gold, diamond and precious metals sector is one of the most important for the country’s economic diversification and is expected “to witness significant growth in the coming period as part of the UAE’s diversification objectives”, according to WAM.
The UAE introduced the 5 per cent value added tax alongside Saudi Arabia on January 1. It applies to most goods and services including groceries, fuel and utility bills.