VAT Impact? UAE jewellery demand hits 20-year low

Gold sales glittered during Dubai Shopping Festival and the last weeks of 2017 as residents rushed to buy jewellery

Despite a decent surge in sales ahead of VAT, gold jewellery demand in the UAE fell for the fourth consecutive year in 2017, falling two per cent to 20-year low, according to World Gold Council data.

"Demand in the UAE received a small boost in December as consumers rushed to make their purchases before a five per cent value-added tax(VAT) was imposed in January. But the 16 per cent year-on-year gain in Q4 demand failed to rescue the market from a fourth consecutive annual decline as 2017 demand was down two per cent to a 20-year low of 42.8 tonnes," the Council said in a report released on Tuesday.

In 2016, the UAE saw gold jewellery demand reached 43.4 tonnes. In Q4 2017, UAE gold jewellery demand reached 10.6 tonnes as against 6.9 tonnes in the same quarter last year.

The gold sales glittered during Dubai Shopping Festival and the last weeks of last year as residents and tourists rushed to buy gold jewellery. Some of the major gold jewellery retailers in Dubai registered record sales during these days as the marriage and festival seasons kicked in. On January 1, the UAE levied five per cent VAT on gold jewellery but spared metals with more than 99 per cent purity from taxation.

Bal Krishen, CEO, Century Financial Brokers, blamed consistent decline in gold jewellery sales to its lacklustre performance as an investment asset.

"Gold needs to continue to outperform as an investment for the sales to grow, as millennials do not see gold to be the best star of value," Krishen said.

Gold started the year on a very bullish note and this trend would be expected to continue given the volatility seen in world equities, he said, adding that the yellow metal "has a strong resistance at $1,530 an ounce and we expect gold to hit these prices during the course of 2018."

Total bar and coin demand in the UAE dropped 8 per cent to 5.5 tonnes in 2017 from 6 tonnes in the previous year. Demand in Q4 2017 also dropped 10 per cent to one tonne as compared to Q4 2016.

According to World Gold Councildata, average consumer demand per capital in the UAE dropped to 4.8 grammes in 2017 from 5 grammes in the previous year.

Middle Eastern demand recovered in Q4 but H1 losses dominated annual demand was down 1.1 per cent year-on-year. Iran was the strongest performer in 2017: Q4 was its tenth consecutive quarter of y-o-y growth. Annual demand gained 12 per cent to 45.4 tonnes, the highest since 2013.

Globally

Globally, gold demand rallied in the closing months of 2017, gaining six per cent year-on-year to 1,095.8 tonnes in Q4. But it was too little, too late as full year demand fell by seven per cent to 4,071.7 tonnes.

According to World Gold Council, full-year gold jewellery demand increased by four per cent to 2,135.5 tonnes - the first year of growth since 2013.

India and China led a four per cent recovery in jewellery, although demand remains below historical averages. Increased use of gold in smartphones and vehicles sparked the first year of growth in technology demand since 2010.

India's 12 per cent year-on-year improvement was partly due to a very weak 2016. Demand fluctuated on changes in tax and regulation.

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Difference Between Excise and VAT

Excise vs VAT

For any government to function effectively, it needs revenues to carry on with its responsibilities. These revenues are generated through taxes of various types that are categorised into direct and indirect taxes. While income tax is a direct tax, both excise and VAT are types of indirect taxes and constitute a bulk of revenues generated by the governments. While there are many categories of items on which excise and VAT are applicable, in general excise is levied on goods manufactured while VAT is levied on the sale of a product or service. Both excise and VAT may be payable on the same product. While excise is paid by the manufacturer, a vendor collects VAT from the end consumer who has to pay this amount to the seller.

Excise

Excise or excise duty is a tax levied by the government on goods produced for sale in the country. It is different from customs which is a tax that a buyer pays when he imports goods from other countries. As such, excise duty is an inland tax. This is an indirect tax which implies that the manufacturer sells it at a higher price than was incurred on production thereby recovering the tax paid on its manufacture. Excise is always in addition to VAT which is paid by the end consumer.

This can be illustrated with an example. Suppose a manufacturer produces something that cost him Rupees 100. Now he will have to pay the excise tax applicable on the product then he sells it to a vendor at a higher price, say Rupees 120. Now the vendor, when he sells it will collect VAT from the customer. Both these taxes are applicable on the same product.

VAT

VAT is the value added tax and is known as consumption tax. It is paid by the buyer and not the vendor who has already paid the excise duty to the manufacturer. However, the vendor has to pay the difference between these two amounts and is allowed to keep the rest to pay for the input tax he has already paid. VAT is almost like sales tax in the sense that it is paid by the end customer. However, it is different from sales tax in that it is collected only once in this chain from the end consumer. The VAT approach has put an end to evasion of sales tax as it gives incentive to the seller when he charges VAT from the end customer.

Difference between Excise and VAT

Both excise duty and VAT are indirect taxes that add to the kitty of the government. In fact, excise and VAT form a bulk of the revenues generated by the government. However, the two taxes are different.

Excise is the tax levied on the manufacture of goods

VAT is the tax levied on consumption of goods

If the manufacturer does not sell and uses the good himself, he does not have to pay any excise duty. But since he sells it as a higher price, he has to pay the excise tax. VAT is not paid by the vendor who purchases the goods from the manufacturer but by the end consumer in the chain. The vendor has already paid excise duty to the manufacturer who deposits it to the government.

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