The introduction of value added tax (VAT) on loose diamonds would strongly jeopardize growth opportunities in the United Arab Emirates (UAE), Dubai’s diamond leadership warned on Monday.
“The possible cost implications of a VAT introduction for UAE traders are huge,” Peter Meeus, chairman of the Dubai Diamond Exchange, said on the opening day of the Dubai Diamond Conference. “In a business where profit margins are very thin, every quarter of a percent is important for traders handling billions of dollars to decide where to ship the goods.”
The UAE government is planning to introduce a 5% VAT charge on rough and polished diamonds traded within the Emirates on January 1, marking a significant change in UAE policy. Many see its zero tax system as a key stimulus for growth experienced in the local diamond industry in the past decade.
“Our trading roots trace back to the principles of a tax-free environment for import and re-export and a mind-set that industry drives government, not that government drives industry,” said Ahmed Bin Sulayem, chairman of the Dubai Multi Commodities Centre (DMCC).
The value of diamonds traded in the UAE rose to $26 billion in 2016, compared with $300 million in 2002 when the DMCC was established.
Meeus cautioned that if the tax was applied, all that the Emirates had achieved in the past 15 years would have been for nothing, and that centers such as Hong Kong, Panama and Singapore stood to gain.