Saudi Arabia raises the VAT on gold 

The Government of Saudi Arabia has decided to use gold to obtain a higher income. This should compensate for the fall of the country’s economy. The Covid-19 pandemic caused a severe economic crisis in the country. From June 1, the VAT applied to physical gold products will be multiplied by three, from 5% to 15%. Their hope is that this will increase state revenues to counteract the pandemic and the oil price crisis the Saudi economy is currently undergoing.

Saudi Arabia bases its economy on oil. The confinement measures and paralysis of transport the Covid-19 pandemic has caused have hit the sector. 

The price of crude has plummeted to historic lows and resulted in the reduction of Saudi Arabia’s main export. It forced the country’s government to seek solutions to offset the drop in revenue.

One of the solutions they have found is what they could do with gold. 

Unlike many other countries, including the European Union, Saudi Arabia taxes the physical gold trade with Value Added Tax (VAT). 

According to data from the World Gold Council, the pandemic has caused a 39% drop in demand for physical gold during the first quarter of the year in comparison to the same period in 2019.

Saudi clients purchase gold for wedding ceremonies

The gold trade sector has been particularly affected in Saudi Arabia, as demand has plummeted due to the confinement and cancellation of social events such as weddings. Gold plays a vital role in such celebrations, generally speaking.

In the last days of June, Saudi gold traders have witnessed a flood of precious metal clients. Once officials lifted the confinement, traders had rushed to advance their gold purchases before the VAT applied to the metal prices.

Many of these clients look for gold as protection against the economic crisis. Meanwhile, others are making planned purchases of the yellow metal in the face of weddings and other events. They are trying to avoid the 10% surcharge that the tax increase will entail.

Despite this, traders point out that the level of sales is even lower than before the pandemic started, and the confinement was decreed.

The fear of the second wave of Covid-19 has led many investors around the world to increase their positions in gold, both physically and as an ETF. This has been one of gold’s factors, driving the price of the metal close to $1,780 an ounce.