Will value added tax dim glitter of gold?

By Samuel Kutty — MUSCAT: APRIL 1 - Will the expected five per cent value added tax (VAT) dim the glitter of gold jewellery?

While ruling out any major impact after introduction of the tax from the beginning of next year, retailers and consumers say that gold is a commodity that has great value and people prefer to invest in.

“Gold is a prized and coveted commodity which is viewed throughout the world as an asset with real inherent value. It’s highly esteemed as an investment. Hence tax will not discourage buying interest”, said Najeeb K, Country Manager, Malabar Gold.

There is a talk that people may cut quantity of gold purchases after the GCC governments implement VAT on all non-essential goods including gold jewelleries, tobacco and luxury cars.

“Most countries in Europe, Asia and Africa charge VAT and that does not mean people stop buying. We do not believe VAT will deter jewellery customers,” says Najeeb.

Beginning January 2018, GCC countries including the Sultanate of Oman are expected to implement VAT, which will apply to purchases of goods and services, with the exception of certain products that are considered essential.

The VAT is added to products incrementally, over the course of the production and distribution process, culminating in an increase in final pricing to consumers.

According to Anto, General Manager of Joy Alukkas, VAT at five per cent will have a modest effect on the quantity of purchase.

“People consider gold as a safe haven asset even for their next generations. Throughout history it has been viewed as a store of value. The planned tax measure is not intended to have a real impact on discouraging consumption”, he says.

Products and services are divided into three broad categories for VAT purposes like products with standard rates, zero rates and exempted supplies.

The zero rates are generally applicable to basic food items, exports, medicines and medical equipment.

The exempted categories are healthcare, education, domestic passenger transport and residences.

Tax experts anticipate that since ornaments are not considered part of the basic goods category, gold consumers can expect a five per cent tax on their purchases.

Gold purchased for investment purposes however, for instance, gold bullion, may get an exemption as is the case in some countries, they believe.

“It is a common practice in most countries to charge VAT on products not considered essential. We have been in a tax-free regime. We have to accept that government needs to increase the revenue to support its spending”, said Deepak Patel, an engineer.

But the reality is that the tax will be passed on to consumers by the gold merchants, he said. “Still the attraction to gold, especially jewellery, will continue because of its safe haven nature”.