The introduction of value added tax could lead to an “exodus” of firms in the gold and diamond industry from the UAE, Ahmed Bin Sulayem, executive chairman of the Dubai free zone where those businesses are based, warned yesterday.
In a strongly worded message to the Dubai Diamond Conference, Bin Sulayem urged the UAE federal tax authorities to think again about imposing VAT on the wholesale precious metals and gems business, which he said could see firms leaving Dubai to other centers like Hong Kong and Singapore.
He is the first senior businessman in the UAE to openly question the authorities on the plan to introduce VAT in the region. Saudi Arabia and the UAE are among states that have pledged to introduce the tax at a 5 percent rate at the beginning of next year
“I cannot emphasize enough how critical this topic is for Dubai as a trading hub. The history books will not judge kindly and credit the tax authority for driving business out of Dubai,” he said.
“This nation was founded on the principles of a tax-free environment for import and re-export. Our success is largely built on a mindset that industry drives government, not that government drives industry. This has long been our competitive edge.
“But the introduction of VAT here in the UAE next year, while one of the lowest (rates) in the world, leaves us, our member companies, and our industries genuinely concerned.
“Among Dubai’s gold and diamond businesses, there is a sincere feeling of uncertainty,” he added.
He pointed out that when Germany and Holland taxed the diamond trade in the past it led to a move to Luxembourg and Belgium respectively.
The gold and diamond industry in Dubai has grown strongly over the past 15 years, to the extent that the Dubai Multi Commodities Center, where the gold and diamond trade is based, is now the third biggest diamond trading center in the world, after Mumbai and Antwerp.
Bin Sulayem said that he knew of two gold refineries in the UAE which were already planning to move operations to Hong Kong as a result of the threat of VAT.
He said that there had been no clarification from the UAE federal tax authorities on its plans for the wholesale gold and diamond industry once VAT is introduced. He was hoping for talks in the next few weeks.
The precious metals and diamond business in Dubai is already suffering. “The businesses in the Gold Souk here in Dubai are reporting that volumes are down between 30 to 40 percent compared with 2016. This is driven by customs duties and a decline of the wholesale gold jewelry trade,” Bin Sulayem said.
Peter Meeus, chairman of the Dubai Diamond Exchange, told the conference that the global diamond industry was already experiencing severe financial problems, with lack of demand and falling prices. “If the (VAT) does not get solved all we have done in the last 15 years in Dubai will be as nothing,” he said