|20 January, 2020

UAE traders' group reacts to India's plans to cut gold import duty

Dubai Gold and Jewellery Group official downplays impact on proposed tax reduction

A saleswoman picks gold necklaces to show it to a customer inside a jewellery showroom on the occasion of Akshaya Tritiya, a major gold buying festival, in Kochi, India, May 7, 2019. Image used for illustrative purposes

A saleswoman picks gold necklaces to show it to a customer inside a jewellery showroom on the occasion of Akshaya Tritiya, a major gold buying festival, in Kochi, India, May 7, 2019. Image used for illustrative purposes

REUTERS/Sivaram V

Reducing the import duty on gold in India will not negatively impact the sales of jewellery traders in the UAE, a top official of the Dubai Gold and Jewellery Group (DGJG) told Zawya on Sunday.

There have been reports that India is likely going to lower the import duty on the precious metal from the current 12.5 percent this year to stimulate the domestic demand in the gold sector. The move is in response to calls form the industry to bring down the tax rate to 4 percent.

Jewellery prices in the UAE have generally been considered cheaper than in India and many other markets around the world, so the country has been witnessing a huge interest from Indian buyers.

Gold in India attracts an import duty of 12.5 per cent and a goods and services tax (GST) of 3 percent, while in the UAE, the corresponding tax stands at only 5 percent. This makes gold shopping at the Gold Souk or any jewellery shop in Dubai a firm favourite among budget-conscious buyers.

“We’re very much cheaper in the UAE. But even if the import duty in India is reduced, it will not have a direct impact on the UAE’s jewellery sector. We cater [not only to Indian buyers] but to many other markets worldwide as well,” said Chandu Siroya, Vice Chairman of the Dubai Gold and Jewellery Group (DGJG).

Jewellery sales both in India and the UAE showed lacklustre performance during the last part of 2019, as consumers were deterred from making new purchases due to the price increases that started in June.

Jewellery demand in India fell 16 percent year-on-year to 460.9 tonnes in the third quarter of 2019, while in the UAE, demand dipped by 21 percent to 5.4 tonnes. The same trend was observed in Saudi Arabia, where jewellery demand dropped 26 percent to 8.8 tonnes.

According to Siroya, a reduction in import duty in India may boost domestic consumption, but that’s not going to have any bearing on the business of jewellery traders in the UAE.  “I don’t see a very big effect on UAE trade because, more than retail, our business is wholesale. We supply and wholesale to almost every country in the world,” Siroya told Zawya.

He pointed out that Dubai is one of the major suppliers of gold jewellery in the global market, with approximately 80 to 90 percent of jewellery produced in Dubai sold at the wholesale level to other countries.

Besides, he added, traders in the UAE have the competitive edge because they don’t just offer the “world’s best prices”; they also offer variety and good quality in terms of designs.

According to Raghu Mandagolathur, Executive Vice President for Kuwait Financial Centre, a reduction in import prices in India could still benefit UAE jewellery traders at some point.

“The [UAE] accounts for more than 80 percent of India’s gold jewellery exports. A reduction in import prices should therefore translate into lower prices for the final output, making it cheaper for UAE gold retailers to import them, thereby boosting their revenue potential,” Mandagolathur said.

However, he added, the impact on revenue growth might only be “marginal” because the drop in the acquisition cost may be negated by the fall in demand due to higher global gold prices.

Mandagolathur had anticipated a softening demand for the yellow metal this year due to rising gold prices and “subdued consumer environment.”

(Writing by Cleofe Maceda; editing by Seban Scaria)

Cleofe.Maceda@refinitiv.com 

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© ZAWYA 2020

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