DUBAI 24 April 2017: The GCC countries – including the UAE – have been urged to keep VAT ‘low and simple’ to avoid inflationary rise.
“Based on other markets’ experiences, I would urge the Dubai government to ensure the rate is kept simple and low,” said Tony Dobra, Executive Director of London’s Baird & Co.
“Looking back at what happened in the UK in 1983, the industry was severely impacted upon the introduction of a 15% VAT on gold followed by a 20% rise swiftly after,” he told recently concluded sixth annual edition of the Dubai Precious Metals Conference (DPMC).
A hot topic of discussion was the fact that states across the Gulf Cooperation Council (GCC) have agreed to introduce a 5% VAT on non-essential luxury goods from January 2018.
An estimated Dh12 billion is expected to be generated from VAT in the first year in the UAE alone.
Commenting on the implications for gold and precious metals, Jeff Rhodes, CEO of Dubai-based Zee Gold said: “A 5% increase on the value added, meaning the mark-up over and beyond the price of the metal, would be acceptable.”
India GST
Looking towards more taxation, India – the UAE’s largest trade partner and the second largest gold consuming market globally – is expected to roll out the Goods and Services Tax (GST). Significant uncertainty is involved in the introduction of GST in terms of how steep the tax will be, what exemptions will apply, or if the tax will be offset against other import duties.
Experts agree that GST is set to have implications on gold trade to the Subcontinent, but it should not curb demand for gold nor change how it is regarded as a safe-haven commodity.
Shariah Gold Standard
Going into the panel on the launch of the global Shariah gold standard in 2016, 60% of delegates polled live at the event agreed that it is a game changer for the industry and would help galvanise investments.
Andrew Naylor of the World Gold Council said: “Until recently, there was a lack of international consensus among scholars on the Shariah treatment of contemporary gold products. Therefore, it is important to recognise the breakthrough achieved so far. The fact that investing in gold is now fully compliant with Shariah principles is truly ground-breaking for Islamic investors and the gold industry at large.”
Currently, the available pool of Islamic finance worth is valued at around $6.5 trillion, hence the importance of tapping into this market. Christophe Lalandre of Switzerland-based bank Lombard Odier pointed out: “Just tapping into 1% of the available Islamic finance pool is equivalent to $65 billion.”
Speaking about the application of the global Shariah gold standard, Maya Marissa Malek, CEO of Amanie Advisors added: “Gold derivatives could work but only if they were supported by Shariah-compliant structures.”
DMCC’s Executive Chairman, Ahmed Bin Sulayem, said: “The past three years have been difficult in terms of trying to gauge where the markets are headed and given geopolitical conditions, 2016 was no exception. The forthcoming taxation will certainly add to the uncertainties we witness on a global level, and although we do not expect a direct impact on DMCC as a Free Zone in terms of gold bars, and rough and polished diamonds, this does not mean that we should stand aside.”
By Rajive Singh