BofA-Metals and Mining-China(H)Chinas Gold VAT Reform：Investment Shift...-20251103

China cancelled the 13% VAT rebate on physical gold

Effective Nov 1, 2025, China has changed its gold taxation framework by removing the VAT deduction mechanism previously available to gold retailers. Under the old system,retailers purchasing gold from the Shanghai Gold Exchange could deduct the 13% VAT paid, effectively lowering the cost of gold for consumers. The new policy eliminates this deduction, meaning all forms of physical gold—bullion, coins, jewelry, and industrial-use gold—are now subject to full VAT without offset. The government’s rationale is to standardize tax treatment across luxury and investment goods, enhance fiscal transparency, and reduce preferential tax structures that may distort market behavior.

Diverging impact on investment vs retail gold demand

YTD’25 China jewelry demand a/c for 8% of global gold demand, and China bars & coins demand a/c for 9%. On the retail side, higher prices due to the non-deductible VAT may dampen consumer interest in gold jewelry and physical investment products like coins and bars in China. Although a 6% input tax credit is still offered for non-investment gold (e.g. jewelry and industry), retailers may face margin pressure and reduced turnover,especially among price-sensitive buyers. In contrast, investment demand may remain resilient or even benefit, as financial gold products—such as ETFs, paper gold, and futures—are not subject to VAT and thus remain unaffected. This could accelerate a shift toward financialized gold exposure as tax-efficient alternatives, in our view.