UAEs Jewellers Hope For A Rethink On 5% Import Duty

Dubai: After enduring its toughest two months in recent history, the UAE’s gold and jewellery sector is hoping for some sort of silver lining. Their biggest hope is that something will be done about the 5 per cent import duty on gold jewellery.

The 5 per cent duty, market sources say, along with 5 per cent value-added tax (VAT) were the factors behind gold’s price inflation at a local retail level in recent months. It was last year that Dubai decided to institute a 5 per cent duty on jewellery, bringing it in line with the other Gulf markets.

This is why the jewellery trade believes governments in the Gulf can now help them out a bit.

Tourists do some window shopping at Dubai’s Gold Souk. Most jewellery retailers are opting to set up their own units in the UAE. Ahmed Ramzan/Gulf News Archives

“There’s been some talk at the GCC level that the customs union might consider a removal of the 5 per cent duty on jewellery,” said Joy Alukkas (right), chairman of Joyalukkas.

“VAT is a reality and governments will not make changes once enforced. But if the trade gets some help on the customs duty, it would still be a positive for us. Currently, the 5 per cent duty plus 5 per cent VAT have eroded much of the price advantage Dubai’s gold trade used to have compared to rates in India, Pakistan and Sri Lanka.”

The current price differential on a gram of gold at the retail level between Dubai and India is 3 per cent.

For the moment, jewellers here are trying to come up with options to make up for the lack of shopper demand. January was rated as being exceptionally bad and February showed only a “relative” improvement. Now, retailers are saying that it could be a few months before volumes get back to some sort of normality. Some believe they might have to wait all the way up to summer before buying perks up, when residents, especially those from the subcontinent, do their pre-vacation buying.

 Currently, the 5 per cent duty plus 5 per cent VAT have eroded much of the price advantage Dubai’s gold trade used to have compared to rates in India, Pakistan and Sri Lanka.”

 - Joy Alukkas | Chairman of jeweller Joyalukkas 

What hasn’t helped is that international bullion prices continue to be on the higher side, with Monday’s (March 5) opening at $1,328.2 (Dh4,878.47) an ounce. This compares with $1,242 on December 12, with prices even touching $1,366 in January. So, there is no respite there for buyers.

With prices in the “high range”, leading jewellery retailers are now trying to see whether they can get price benefits from local manufacturing of gold jewellery.

Jewellery made here will only be charged 5 per cent VAT. There is no import duty on bullion imports.

“For a budget buyer interested in only the weight of gold and not the jewellery design, we are now showing them our ‘Made in UAE’ collections because they do not have the 5 per cent import duty,” said Abdul Salam K.P., (right) director at Malabar Gold & Diamonds, which operates two jewellery units in Sharjah and is going in for a third one, which will be in Dubai.

“But this is only helpful when it comes to simple designs — for the more intricate pieces, we will still need to import from India, Turkey or Singapore. These are buyers willing to pay a premium and [are] not bothered by the import duty. But local manufacturing gives us the option to have something for a value buyer. From a volume perspective, no jewellery retailer in the Gulf can afford to ignore these buyers.”

More jewellery retailers are setting up their own manufacturing units here, with Kalyan being one such. UAE jeweller Damas recently went in for one of the most advanced plants for its branded jewellery range in Dubai.

Kanz Jewellery has just upgraded to a new location in Dubai after operating a small unit in the Gold Souq. But its focus will be on high-end pieces rather than “plain chains and bangles”, according to Anil Dhanak (right),  managing director.

“We will keep on targeting a design-focused buyer for our ‘Made in UAE’ 22-carat pieces and then get into 21- and 18-carat collections as well,” said Dhanak. “It will not be the case that buyers’ taste for gold will remain fixed on 22-carat forever. We will need to keep changing with market demand and our own unit gives us the flexibility to do so.

“The jewellery market in the UAE needs to move far away from the McDonald’s way of doing business — specialisation and bespoke designs should be the future.”

For UAE’s jewellery retailers, pricing is the key

3%

 price differential on a gram of gold at the retail level between Dubai and India

The price and quality of gold and jewellery have been the strong points of retailers in the UAE over decades. But some of the price advantage has been eroded with the addition of import duty and VAT on ex-showroom prices. According to Joy Alukkas of the retail network, “The current price advantage in the UAE vis-a-vis India is 3 per cent. That’s because of the 10 per cent import duty India has on gold. If that gets cut, and there’s been talk of that possibility, the price differential vanishes.”

Making jewellery in the UAE and then be exempt from the 5 per cent import duty will not be of benefit only in the UAE. Shipping these pieces to some of the other Gulf markets will also carry the same benefit.

But not in Saudi Arabia — “The rule requires 40 per cent localised inputs to be exempt,” said Abdul Salam K.P. of Malabar Gold & Diamonds. “But with standard gold jewellery, 90 per cent of it is gold and comes in the form of bullion, which is imported.”

Apart from the growing base for local jewellery manufacture, the UAE also hosts makers of bullion bars and coins through operations owned and operated by the likes of Kaloti and Emirates Gold.