The United Arab Emirates should consider excluding the gold and diamond industries from paying a new value-added tax (VAT) that is expected to be implemented in the country by next January, officials from the two industries said at a diamonds conference on Monday.
All six GCC countries had agreed last year to introduce a new VAT at a five percent rate on an array of goods and services in attempts to diversify the states’ sources of income.
The UAE had announced in August it will impose the new VAT starting from January 1, 2018. The Emirates subsequently issued a VAT law that included some details on the position of some products and services with regard to VAT.
The law did not specify if gold and diamond-related products and other jewelry items will be subject to VAT at its standard rate or whether they will get special treatment. However, it did say that precious metals used for investment purposes will be subject to VAT at a zero rate, which allows businesses to reclaim VAT paid on business costs.
VAT on certain types of diamond “should be considered a commodity in which a zero percent tariff VAT regime is applied that would allow the UAE diamond trade to grow further”, Peter Meeus, the chairman of Dubai Diamond Exchange told attendees at the Dubai Diamond Conference on Monday.
“The same zero tariff is currently disbanded in all other diamond centers across the globe,” Meeus said.
“I am not really happy to mention this part in public and in our own conference, and in the presence of so many international visitors but at the same time it has to be said loud and clear. If this challenge does not get solved, all that we have done in the last 15 years would have been for nothing,” he added.
The UAE is one of the biggest diamond trading hubs in the world. The value of the emirate’s diamond trade had grown from $3.5 billion in 2003 to around $26 billion in 2016, according to a press release issued by the annual conference’s host Dubai Multi Commodities Centre (DMCC), the free zone that is home to many of the city’s commodities traders, on Monday.
In the same press conference on Monday, DMCC’s chairman, Ahmed Bin Sulayem, also voiced concerns about the implications of imposing VAT on both the gold and diamonds markets in the UAE.
“The introduction of VAT here in the UAE next year, one of the lowest (rates) in the world, leaves our member companies and our industry genuinely concerned. Among Dubai’s gold and diamond businesses there is a sincere feeling of uncertainty,” Bin Sulayem said in his speech at the Dubai Diamond Conference’s first day on Monday.
The UAE is expected to issue more details on the VAT’s impact on various goods and services before the end of the year.
“I am already aware of two gold refineries in the UAE looking to move to Hong Kong. This will send a very negative message… Diamond and gold are critical to Dubai,” Bin Sulayem said.
The UAE’s undersecretary for foreign trade and industry at the ministry of economy, Abdulla Alsaleh, thanked the officials from the gold and diamond industries in his speech at the same event on their comments on the VAT implications. He did not give a direct response to the concerns, however, said that the ministry had held talks with several diamond traders to “ensure all the facilities they need can be found here in Dubai”.
Meeus said during his speech that the potential cost increases that could happen due to VAT could trigger a “huge” impact on the diamond business that he said already operates on slim profit margins.
Meeus said industry officials will meet with officials from the UAE’s Federal Tax Authority in the coming weeks.
© ZAWYA 2017