Beijing has altered the tax treatment of gold for Chinese retailers, a move that could ripple through the world’s biggest consumer market for the metal.
From now on, companies that buy gold from the Shanghai Gold Exchange to turn into jewellery or industrial products will be hit with a 7% value-added tax, after being able to reclaim the full 13% VAT.
UBS strategist Joni Teves notes that the change, announced on Saturday, effectively raises the cost of raw gold for jewellers and manufacturers, narrowing the margin on finished products. Non-members of the exchange face the same tax regardless of how they use the gold.
The change follows a similar withdrawal of VAT breaks for platinum and appears part of a broader effort to harmonise China’s treatment of precious metals, though gold still retains a 6% cost advantage over metals such as platinum and palladium.
Only investment gold, such as bars, coins and exchange-traded funds bought through the Shanghai Gold or Futures exchanges, remains exempt, which is in line with markets such as the US, UK and Switzerland.
The market reaction, UBS says, is likely to be initially negative, especially given recent weakness in gold prices.
Jewellery demand, already subdued by high prices, may soften further as costs are passed on to consumers. But the investment segment stands to gain.
The exemption could draw more buyers into exchange-traded gold products, increasing participation in China’s gold exchanges and adding depth to domestic market liquidity.