China cuts gold tax exemption as state bank stops gold product enrollments
A Chinese state bank closed retail gold accounts to new investors on Monday, two days after Beijing tweaked a long-standing tax exemption for the metal that is likely to hit retail demand in the world's biggest consumer market.
State-owned China Construction Bank said on Monday it would no longer accept applications for one of its gold purchasing accounts without giving a reason. Fellow major ICBC also restricted new applicants but reversed the move hours later.
The decisions follow Beijing’s announcement two days earlier that it would cut the full 13% value-added tax exemption to 6% for certain gold purchases through the Shanghai Gold Exchange and the Shanghai Futures Exchange from November 1.
The change will affect industrial and jewellery users because gold purchased for investment, for example gold bars or ingots, is exempt, as are paper trades on the exchange. The new regime applies to non-members of the SGE regardless of the gold's ultimate use.
"We expect the net effect is higher costs on gold consumption in jewellery and industrial uses," UBS analyst Joni Teves said in a note on Monday, adding it could spur more companies to join the exchanges, improving liquidity and transparency.
The new tax regime comes amid a worldwide rush to buy gold, especially in China where consumers have lined up to purchase jewellery from retailers.
The buying helped drive gold's rally to a record $4 381 an ounce on October 20.
Spot gold prices on Monday briefly slipped below $4 000 an ounce and were last trading near that level and have dropped about 9% since hitting the record.
Shares of gold jewellery retailers Laopu Gold and Chow Tai Fook dropped as much as 9% and 12%, respectively, on Monday, while gold miners Zijin Mining and Zhongjin Gold each fell around 1.5%.
Last month, the value-added tax exemption for platinum was also removed for China Platinum Company, also beginning on November 1.
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