The UAE is set to introduce five per cent VAT on a host of services and goods from January 2018 as part of the Gulf Cooperation Council agreement.
Addressing the Dubai Diamond Conference, Dubai Multi Commodities Centre’s (DMCC) executive chairman Ahmed bin Sulayem urged authorities to be cautious in order to avoid shifting of businesses from the UAE as a direct fallout of VAT.
“The introduction of VAT here in the UAE next year – though lowest in the world – leaves our member companies and even industry generally concerned. There is a sincere feeling of uncertainty. I’m already aware of two gold refineries in the UAE looking to move to Hong Kong. This sends a very negative message if it becomes a reality. Diamonds and gold are critical for Dubai, jointly accounting for $75 billion annually,” Bin Sulayem said, cautioning the tax authorities to be kind on the industry.
“I would like the tax authorities to consider (what happened) in Germany at the beginning of the 1980s. Tax introduction led to the demise of Europe’s – and potentially the world’s – biggest physical gold market. The impact was reduction of up to 90 per cent in volume and the market moved to Luxembourg. While Germany abolished tax many years later, the damage was already done. In a similar fashion, the introduction of tax in Holland moved the diamond trade from Amsterdam to Antwerp. The business in the gold souk here in Dubai reports volumes are down 30-40 per cent compared to 2016. This is driven by customs duties and decline of wholesale gold jewellery trade. I can’t emphasise enough how critical this topic is for the UAE and Dubai, which is a trading hub. It will take several decades to restore market confidence. Therefore, we strongly urge our tax authorities to take this matter seriously and help us create certainty about our future,” the DMCC chief said.
The UAE is set to introduce five per cent VAT on a host of services and goods from January 2018 as part of the Gulf Cooperation Council agreement. Along with the UAE, Saudi Arabia will also impose VAT from next year while other Gulf states will implement it at a later stage.
The third edition of the two-day biennial conference was attended by Abdullah Al Saleh, undersecretary at the foreign trade and industry, UAE Ministry of Economy, and hundreds of industry delegates from around the world.
Bin Sulayem pointed out that this nation was founded on the principle of a tax free environment for imports, exports and re-exports. “Our success is largely built on the mindset that industry drives the government – not government drives the industry. This has long been our competitive edge.”
“In 15 years, Dubai has become third biggest diamond trade centre with an appetite to achieve more. We designed environment that is safe, investor-friendly and conveniently links the producing and consuming markets. The DMCC’s investments, world class infrastructure, the government-backed Dubai Diamond Exchange and state-of-the-art vault and storage facility have made all that possible,” he noted.
Peter Meeus, chairman, Dubai Diamond Exchange, said the UAE is ranked third after Antwerp and Mumbai in wholesale trade centres of diamonds.
“With a total of $26 billion in 2016, the UAE has gone through a meteoric rise to eminence after starting with a mere $300 million in 2002 when DMCC was established.This story should continue in the next decade and all the odds are in favour of further growth. However, the announcement of a possible introduction of VAT on loose diamonds would strongly jeopardise this,” Meeus said.
He highlighted that the possible cost of VAT introduction for UAE is huge. In a business where profit margins are very thin, every quarter of a per cent is important for traders handling billions of dollars to decide where to ship the goods, he added.
“Places like Hong Kong, Panama and Singapore could be considered as alternatives if undue taxes were to be put on loose diamonds. Same stories have happened in the past when traders preferred Antwerp over Amsterdam in 1921 when the Dutch imposed a similar tax over the diamond trade which made the traders leave to Belgium,” Meeus said during his address.
He urged that the VAT on loose diamonds should be considered a commodity on which a zero per cent VAT regime is applied, allowing the UAE diamond trade to grow further. The same zero tariff is currently the standard in all other diamond centres across the globe.