The new value-added tax (VAT) to be introduced in Saudi Arabia and the United Arab Emirates in 2018 will negatively impact gold demand, according to the World Gold Council (WGC).

“Demand is likely to falter once the new tax is in place,” the WGC said in a statement on Thursday.

The VAT will amount to 5% and will be imposed starting in January on all non-essential luxury goods, including gold jewelry.

The WGC also pointed out that the gold market might see a significant boost in demand at the end of this year, as consumers rush to buy gold jewelry before the tax is introduced. “Although we believe the effect will be temporary,” the Council noted.

In Q3, gold jewelry demand in Saudi Arabia was weak, falling 9% to 9.8 tonnes, largely dragged down by higher prices, the WGC said in its latest ‘Gold Demand Trends’ report. The U.A.E. also saw a decline of10% to 7 tonnes, the report added.

Overall demand in the Middle East fell 4% to 40.9 tonnes — the lowest level in three years.

Many foreigners living in the U.A.E prefer to purchase gold in Dubai instead of their own home countries because of competitive prices and product purity. The new tax could threaten that trend.

The VAT is estimated to bring in $3.3 billion in the first year alone in the U.A.E.

But, there are some who disagree that the new tax will have a significant impact on gold jewelry sales.

“We are still awaiting clarity on the method of calculations for VAT in the jewelry industry. We are certain that the visionary leadership in the UAE will take a decision which will be favorable for the industry and retail in general,” Shamlal Ahamed, managing director at international operations of Malabar Gold & Diamonds told Khaleej Times.

Share This Post