China ends gold tax break in setback for key bullion market

[SINGAPORE] China is scrapping a long-standing gold tax incentive in a potential setback for consumers in one of the world’s top bullion markets.

Starting on Nov 1, Beijing will no longer allow retailers to offset a value-added tax when selling gold they bought from the Shanghai Gold Exchange, whether sold directly or after processing, according a new legislation from the Ministry of Finance. 

The rule covers both investment products – such as high-purity gold bars and ingots, as well as coins approved by the People’s Bank of China – and non-investment uses including jewellery and industrial materials.

The move should bolster government revenue at a time when a sluggish property market and weak economic growth have strained public coffers. But the changes will also likely increase the cost of buying gold for Chinese consumers.  

A buying frenzy among retail investors around the world recently helped gold’s record-breaking rally move to overbought territory, setting the precious metal up for an abrupt correction. 

Gold’s worst rout in more than a decade coincided with a reversal of relentless buying through exchange-traded-funds, which had been on the rise since late May. It also matched the end of seasonal buying linked to festivities in India. A trade truce between the US and China, meanwhile, eased demand for bullion as a haven asset.

But gold is still holding near the US$4,000-an-ounce milestone it breached earlier in October, and many of the fundamentals that pushed it higher are expected to remain: buying by global central banks, US interest-rate cuts, and a host of global uncertainties that still make its perceived safety appealing to investors.

Many in the industry, still see prices nearing US$5,000 an ounce in about a year. BLOOMBERG