Key Policy Updates: · China's Ministry of Finance and State Taxation Administration announced adjustments to the VAT policy for gold transactions, effective from November 1, 2025, through December 31, 2027. · Members trading gold directly on the Shanghai Gold Exchange (primary supply) retain VAT exemption, but those withdrawing physical gold now face differentiated policies based on investment vs. non-investment purposes. · Members extracting gold for investment purposes (e.g., resale) remain unaffected, continuing to pay 13% VAT on value-added portions under existing rules. Non-investment users will incur higher distribution costs. · Clients accessing gold via exchange member agents will also face increased tax liabilities.
Market Implications: · Rising costs may pressure China's gold jewelry demand, though this could incentivize industry innovation in craftsmanship and design over price competition. · While gold bar and coin demand remains unaffected, investors may increasingly purchase through Shanghai Gold Exchange members. · The widened gap between jewelry purchase and buyback prices due to tax hikes may dampen recycling incentives.
Policy Background: The latest VAT adjustments specifically target China's gold market, marking the first major change since April 2019 when VAT was reduced from 16% to 13%. Unlike recent platinum and diamond import tax reforms, this policy introduces purpose-based differentiation:
Previous System (Pre-Nov 2025): · Primary transactions: VAT exemption for exchange members under "immediate refund" policy. · Secondary transactions: 13% VAT on value-added portions when members resell (transferred to clients). · Retail transactions: Same VAT treatment for end consumers.
New Changes: 1) Investment-purpose gold: · No change for members reselling investment products (e.g., branded bars), still paying 13% VAT on value-added. · Downstream resellers now bear full 13% VAT without input deduction, incentivizing direct purchases from members.
2) Non-investment gold (e.g., jewelry): · Members can only deduct 6% of purchase price (vs. previous 13%) against 13% output VAT, increasing retail prices by approximately (selling price×13% - cost×6%).
3) Standard gold purchases: · Agent clients now treated equivalently to non-investment members, facing higher costs due to reduced 6% input deduction.
Market Outlook: Investment Sector: · Direct purchases of bars/coins from exchange members remain unaffected. · Gold ETFs and accumulation plans unchanged. · Members' VAT advantages may strengthen market dominance. · Potential growth in bar sales for custom jewelry processing to avoid jewelry taxes.
Jewelry Sector: · Higher retail prices may pressure demand, though historical data shows weakening price elasticity at record-high gold prices. · Industry consolidation may accelerate, shifting competition toward design innovation. · Mainland-Hong Kong/Macau price divergence likely as SARs remain unaffected.
On-the-Ground Observations: · Jewelry prices rose nationwide from November 3, reflecting tax burdens. · Weak National Day sales and delayed 2026 Lunar New Year may reduce Q4 restocking. · "Gold bar customization" models gaining traction. · Non-member retailers raised bar prices by ~13%.
Recycling Market: Expanded price gaps between new jewelry and buyback values (pegged to exchange rates) may discourage consumer sell-backs.
Strategic Outlook: The policy reinforces challenges for jewelers in attracting youth consumers amid high gold prices. As noted in WGC's 2025 China Gold Jewelry Report, lightweight hard-gold products and mixed-material designs continue gaining traction due to lower price thresholds and innovative appeal. Against a backdrop of property market weakness and high savings rates, China's gold investment demand is expected to remain robust.
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