(MENAFN- The Arabian Post)

Beijing's decision to eliminate a longstanding value-added tax offset for gold retailers marks a significant shift in policy, poised to raise domestic prices and influence global supply dynamics. From November 1 the Ministry of Finance announced that firms selling gold acquired from the Shanghai Gold Exchange or processed from it may no longer deduct VAT when disposing of the metal, whether in raw bars, coins or jewellery.

The policy change spans investment-grade items such as high-purity bars and People's Bank of China approved coins, and non-investment categories including jewellery and industrial gold inputs. Analysts say the adjustment is likely to increase costs for retailers and potentially temper consumer demand in one of the world's largest physical gold markets.

Chinese gold jewellery stocks plunged on the announcement, underscoring traders' concerns that reduced margin leeway may force higher retail prices. The move comes amid weakening growth in consumer spending and a sluggish property market, suggesting the government has chosen revenue generation over support for gold demand.

Globally, gold remains supported by central-bank accumulation, inflation worries and geopolitical uncertainty, with spot prices hovering near the US$4,000-per-ounce mark. Nevertheless, the Chinese policy pivot introduces a fresh variable. As the world's biggest gold consumer, any domestic demand contraction could ripple through commodity markets.

Industry participants caution that smaller consumers could be most affected. Retailers operating on thin margins must either absorb the VAT cost or pass it on to buyers, potentially suppressing volume sales of lower-price items. Meanwhile, some observers note that investment-oriented demand may prove less sensitive to the tax change, since bullion buyers tend to focus on price and store-of-value attributes rather than tax benefits.

See also Deloitte's AI Misstep Spurs Questions on Consulting Oversight

In overseas markets, shifts in Chinese pricing may alter trade flows. Retailers in Hong Kong, Singapore and beyond have tracked China's pricing edge; any premium due to this tax move could encourage cross-border imports or diversification of sourcing, with implications for arbitrage and regional spreads. For example, gold imports and retail volumes in neighbouring markets could face pressure as price sensitive buyers weigh higher costs.

On the mining and refining side, the policy change adds complexity. China's refined gold output and processing ecosystem rely on predictable cost structures. With margins under pressure, processors may reconsider scale or input strategies, and international suppliers to China may evaluate their order flows. The removal of the VAT offset effectively raises the break-even threshold for domestic operations.

From a fiscal standpoint, the policy aligns with broader efforts to stabilise government revenues as China navigates an extended growth recovery. Analysts interpret this as part of a broader shift towards revenue tools that do not rely on property-sector upside or cyclically-driven consumer purchases. It also hints at the broader priority the government places on budget balance over the support of a commodity that previously benefited from tax favour. However, the speed of demand adjustment remains uncertain; gold has long stood as a traditional safe-haven for Chinese households amid financial and currency uncertainty.

Investors will closely monitor how quickly these cost changes feed through to retail pricing, whether volume declines in the jewellery segment crystallise, and how global bullion markets reconcile a potential weakening demand engine in China with ongoing central-bank accumulation. The ultimate effect may hinge on whether this tax-policy shift coincides with broader global headwinds or tailwinds for precious metals.

See also Trump Says Modi Promised End to Russian Oil Imports

Notice an issue? Arabian Post strives to deliver the most accurate and reliable information to its readers. If you believe you have identified an error or inconsistency in this article, please don't hesitate to contact our editorial team at editor[at]thearabianpost[dot]com. We are committed to promptly addressing any concerns and ensuring the highest level of journalistic integrity.

MENAFN03112025000152002308ID1110285109