News

Shariah gold standard introduction opens up $6.5 trillion Islamic finance market

DMCC, the authority on trade, enterprise and commodities in Dubai concluded the sixth annual edition of the Dubai Precious Metals Conference (DPMC), one of the most anticipated annual events in the industry. Over 300 delegates across the value chain attended the event, participating in a number of workshops and panel discussions.

The conference, held under the theme of ‘Connecting Markets - the New Era of Global Trade’, covered pertinent topics including the implications of taxation of gold in global hubs; the applications of the global gold Shariah standard; current geopolitical challenges and the importance of branding in the global precious metals industry.

Closing the two-day conference, DMCC’s Executive Chairman, Ahmed Bin Sulayem, said: “As a leading commodities hub and the world’s best Free Zone, DMCC stands strong as a market maker for the global trade of gold and precious metals. Key to this is connecting businesses and providing them with the right environment to grow in Dubai and beyond.

The past three years have been difficult in terms of trying to gauge where the markets are headed and given geopolitical conditions, 2016 was no exception. The forthcoming taxation will certainly add to the uncertainties we witness on a global level, and although we do not expect a direct impact on DMCC as a Free Zone in terms of gold bars, and rough and polished diamonds, this does not mean that we should stand aside. In fact, collective efforts are now needed more than ever to navigate the challenging conditions. The past two days have offered everyone amongst us an excellent opportunity to exchange knowledge and insights. Finally, I would like to thank all the delegates for their commitment to building a strong future for the trade industry and attending this annual event. We look forward to seeing you at the next Dubai Precious Metals Conference.”

A hot topic of discussion was the fact that states across the Gulf Cooperation Council (GCC) have agreed to introduce a 5% VAT on non-essential luxury goods from January 2018. Indicative of its importance in generating revenues, an estimated AED12 billion is expected to be generated from VAT in the first year in the UAE alone. Commenting on the implications for gold and precious metals, Jeff Rhodes, CEO of Dubai-based Zee Gold said: “A 5% increase on the value added, meaning the mark-up over and beyond the price of the metal, would be acceptable.”

Agreeing with Rhodes, Tony Dobra, Executive Director of London’s Baird & Co, continued: “Based on other markets’ experiences, I would urge the Dubai government to ensure the rate is kept simple and low. Looking back at what happened in the UK in 1983, the industry was severely impacted upon the introduction of a 15% VAT on gold followed by a 20% rise swiftly after.”

Looking towards more taxation, India, the UAE’s largest trade partner and the second largest gold consuming market globally, is expected to roll out the Goods and Services Tax (GST). Significant uncertainty is involved in the introduction of GST in terms of how steep the tax will be, what exemptions will apply, or if the tax will be offset against other import duties. Experts agree that GST is set to have implications on gold trade to the sub-continent, but it should not curb demand for gold nor change how it is regarded as a safe-haven commodity.

Going into the panel on the launch of the global Shariah gold standard in 2016, 60% of delegates polled live at the event agreed that it is a game changer for the industry and would help galvanise investments. Andrew Naylor of the World Gold Council said: “Until recently, there was a lack of international consensus among scholars on the Shariah treatment of contemporary gold products. Therefore, it is important to recognise the breakthrough achieved so far. The fact that investing in gold is now fully compliant with Shariah principles is truly ground-breaking for Islamic investors and the gold industry at large.”

Currently, the available pool of Islamic finance worth is valued at around $6.5 trillion, hence the importance of tapping into this market. Christophe Lalandre of Switzerland-based bank Lombard Odier pointed out: “Just tapping into 1% of the available Islamic finance pool is equivalent to $65 billion.”

Speaking about the application of the global Shariah gold standard, Maya Marissa Malek, CEO of Amanie Advisors added: “Gold derivatives could work but only if they were supported by Shariah-compliant structures.”