Lawmakers on Monday began discussion of a bill seeking to tax the sale of second-hand jewellery and precious metals.

In recent years, particularly in the wake of the 2013 financial crash, people had taken to selling off gold and silver to jewellers and pawn shops.

Owners of such items sell them for cash to shops, who in turn resell or export them to the European Union.

Under existing law, the sale by a private individual to a jeweller or a pawn shop is not subject to VAT, since the owner of the item is not a taxable person.

But sales of such items by a jeweller to an exporter are subject to 19 per cent VAT. The exporter may claim a tax refund or rebate, given that deliveries of these items within the EU are subject to zero per cent sales tax.

According to the government, it has been found that when jewellers sell to exporters, the former do not declare the transaction, even when an invoice has been issued. What happens next, is that the Tax Department is asked to refund to the exporter the VAT, but the VAT has not been paid by the shop in the first instance – leading to significant loss of state revenue.

Now, under a bill amending the law governing VAT, a new provision will be added stipulating that whenever a taxable person buys unfinished or semi-finished precious metals, that person should pay VAT with the chargeback method.

A chargeback is the return of credit card funds used to make a purchase to the buyer.

The VAT will be paid by the person receiving the items (the jeweller), rather than by the person that hands over the items (the original owner). This relates to unfinished and semi-finished metals, including precious metals.