Relief for Indian exporters as Dubai mulls VAT breather for B2B gold sales

On January 1, Dubai and UAE authorities levied a 5% VAT on gold and other jewellery

In what could be a major relief for Indian gem and jewellery exporters, the Dubai government is mulling to give them an exemption from the recently implemented value-added tax (VAT).
 
On January 1, the Dubai and United Arab Emirates (UAE) authorities levied a 5 per cent VAT on gold and other jewellery. This affected Indian exporters as they used to route their consignments to European and African countries through the UAE and Dubai till last year.
 
After the levy, gold price in Dubai came close to the prices in India. So, exporters targeting markets abroad, including non-resident Indians, were finding it pricey to go through Dubai.
 
The authorities, however, are now considering removing the VAT on business-to-business (B2B) and business-to-consumer (B2C) sales, as well as on gold. The levy will, however, remain on jewellery-making charges.
 
In a letter to its members, the Dubai Gold and Jewellery Group (DGJG), the largest jewellers’ body in the city, said: “We have been informed by Ahmed Bin Sulayem, executive chairman, Dubai Multi Commodity Centre, that our sector may receive special considerations for the VAT in a few months.”
 
“B2B customers will be charged 5 per cent on full value through the reverse-charge mechanism,” the letter continued. “This means there is no need for an actual payment. VAT would be applicable only on paper. For B2C, or retail customers, however, 5 per cent VAT will be... on making charges/value-additions and not on the gold value.”
 

Data compiled by India’s Gems and Jewellery Export Promotion Council (GJEPC) showed the country’s gross gems and jewellery exports declined 7.53 per cent in rupee terms and 3.63 per cent in dollar terms between April last year and February this year.
 
Much of the decline has happened after the VAT was introduced as West Asia continues to be a major export market for gems and jewellery.

“If the VAT is removed, it would be a big relief. India’s jewellery exports to the UAE declined 50 per cent since it was levied,” said Rajiv Popley, director, Popley & Sons, a Mumbai-based jewellery exporter with a large retail presence in Dubai.
 
He added that the VAT had diluted the purpose of making Dubai a tax-free haven.
 
The tax had also hit India’s exports to other West Asian countries. “Exporters were supplying a large quantity of gems and jewellery to the West Asian countries. The removal of the tax will benefit exporters,” said Sabyasachi Ray, executive director, GJEPC.