China ends tax incentive on gold sales, raising costs for consumers and retailers

China has scrapped a long-standing tax incentive on gold sales in a move that could raise costs for consumers and reshape pricing dynamics in one of the world’s largest bullion markets.

Effective from November 1, China's Ministry of Finance announced that gold retailers will no longer be allowed to offset the value-added tax (VAT) when selling gold purchased from the Shanghai Gold Exchange, according to a Bloomberg report. The policy applies to all forms of gold—whether sold directly or processed into jewellery, coins, high-purity bars, or industrial materials—marking a major shift in the country’s taxation framework for the precious metal.

The decision comes at a time when China’s economy is under pressure from weak domestic demand and slowing growth, prompting the government to explore new revenue channels. The removal of this tax relief is expected to boost fiscal income, but analysts warn it could increase gold prices for end consumers and dampen retail demand in the short term.

For years, China’s VAT offset mechanism helped keep domestic gold prices competitive by allowing retailers to reduce their tax burden when selling gold purchased from the Shanghai Gold Exchange. Without this advantage, retailers may now face tighter margins, forcing them to either absorb the added costs or pass them on to customers.

Higher costs, weaker margins

The immediate impact will likely be felt at the retail level. “The end of the VAT offset is essentially a cost increase for the entire gold retail chain,” said an industry analyst quoted by Bloomberg. “Retailers that were already operating on thin margins will now face tough choices—either raise prices or accept lower profitability.”

Chinese consumers, who have shown strong interest in gold as both a safe-haven asset and a cultural investment, may see price increases on jewellery and investment-grade gold. The move could also temporarily soften domestic demand, especially among price-sensitive buyers, though long-term sentiment toward gold as a store of value is expected to remain resilient.

Potential ripple effects

China’s influence on global gold markets means the policy could have wider repercussions. The country is the world’s largest consumer and importer of gold, and any reduction in demand could influence international prices. However, with global gold prices hovering near US$4,000 per ounce, and some analysts forecasting levels as high as US$5,000 within a year, the broader upward trend in bullion could continue if global demand remains strong.

Changes in China’s retail pricing could also affect cross-border gold trade flows, especially in neighbouring markets like Hong Kong, Singapore, and India, where price differentials often guide consumer and trader behaviour.

Market adjustments

In the coming months, industry participants will closely monitor how retailers adapt to the new tax landscape. Some may explore hedging strategies or shift focus toward higher-margin jewellery and designer products to maintain profitability. Others could leverage branding and marketing to sustain demand despite higher prices.

Ultimately, the full impact of the policy will depend on consumer response, the trajectory of global gold prices, and the broader health of China’s economy. While the move may strengthen government revenues, it also adds a new layer of complexity for retailers and investors navigating an already volatile global gold market.