India’s GST triggers gold rush in the Gulf

Hyderabad: Tourists or expatriates, who’re flying back from Dubai, known as City of Gold, are a bit over weighed as loads of gold jewellery add to their weight. Not only non-resident Telanganites (NRTs), who form second largest Indian community in the UAE after Keralites, and Telugu people, but also well-heeled people across the country are rushing to Dubai to buy gold ornaments to take price advantage thanks to GST, which came into force from July 1 onwards.

The price advantage of buying gold jewellery in Dubai is over 13 per cent and Rs 3 lakh worth buying of yellow metal will comfortably break even the travel cost. Rupee rise against US dollar, for which UAE currency dirham is pegged, is further bringing cheer to Indian buyers. People with high disposable income are going to Dubai for marriage shopping on visit visa. Dubai visit just for buying gold is on the rise these days. Dubai gold souk is glittering, while GST is giving jitters in India.

The Hans India spoke to jewellers and Telugu expatriates in Dubai and found that how the GST and rupee rise are two major factors that boosting bullion sales. This Sravana month and forthcoming marriage season will further bolster Gulf-bound travelling for gold jewellery more, observe Dubai-based jewelers, who’re upbeat on a manifold jump in sales.

A gold jeweller at Dubai gold souk, on a condition of anonymity, said that “sales kept rising by the day ever since GST came into effect in India. Dubai gold souk is witnessing a sudden spurt in gold jewellery sales as about 13 per cent price advantage is luring not only NRIs in Dubai, but also tourists from India as well. Bulk buying ranging from half kg to 2kg has become a normal feature these days.”

Total taxes and duties pre-GST were 12.5 per cent in total and are hovering at 14 percent post-GST. This is what making a huge difference between India and Dubai gold market. Before GST, there were one per cent excise duty, 1.5 per cent VAT and 10 per cent customs duty in addition to variable processing fee. In addition to 3 per cent GST, 10 per cent customs duty remains, while the Centre reduced GST on making charges from 18 per cent to 5 per cent.

Advantage Dubai

Narender Vemula (name changed), who works as a site engineer at a leading construction company in Dubai, said: “I took two visit visas for my brother and cousin from Karimnagar. They arrived in Dubai and spent a week. Three of us flew back to Hyderabad wearing gold jewellery. Anyway, I would buy some gold ahead of my annual leave. The price difference made Dubai trip for my brothers at free of cost.”

Spot gold in global markets is hovering at five-year low at $1,246.52 per ounce on Wednesday from $1,730.70 an ounce recorded in October 2012. 24k gold on Wednesday closed at Dh152.25 and 22k gold at Dh143 in Dubai. Considering the latest price of Rs27,210/10grams of ornamental gold, one kg gold costs over Rs 27 lakh. 13 per cent tax advantage, if one buys 1 kg gold in Dubai, gives Rs 3,51,000 surplus going into buyer’s pocket. Two-way air fare from Hyderabad to Dubai is ranging between Rs 23,000 to Rs 32,000. On a very conservative basis, the price advantage of buying one kg gold can easily absorb travel costs of even six people going to Dubai on visit visa.

Rupee surge
Rupee rose 5.2 per cent this year so far as it’s trading at 64.38 against US dollar from 67.90 on December 30, 2016. UAE currency dirham is pegged against US dollar and moves in tandem with the greenback. Hence, rupee rise gives a forex advantage against UAE dirham for Indian buyers. Gold price rose 8.6 percent this year so far as it’s at $1,246.99 on Wednesday from $1,147.50 on December 30, 2016. However, this price rise of the yellow metal is cushioned by over five percent surge in rupee since January.

How long will it continue?

The gold rush in Dubai may not continue for long as the revenue-strapped Gulf nations are inclined to levy taxes to support their top line. UAE has decided to introduce 5 per cent VAT from January 2018. Saudi Arabia is also following the suit. This will erode the price advantage of Dubai gold to some extent, observe Gulf jewellers. However, jewellers are keeping their fingers crossed over the outcome of new tax regime.

“It’s too early to comment on the impact of 5% VAT on local jewellery. There's no clarity on whether VAT is refundable for tourists and expatriate residents at the airports. If that turns out to be true, then Dubai gold market continues to shine,” said a jeweller, who runs his gold shop in Bur Dubai. Meanwhile, Singapore and Sri Lanka are also catching up as bullion markets in these countries witnessing surge in sales this month.

By Sreenivasa Rao Dasari