The local watches and jewelry market will be negatively affected by the decrease in tourists’ value added tax (VAT) refunds. The government recently proposed reimbursing only 80 percent of tourists’ purchase taxes as a source to fund the salary scale.

Ramzi Moukhaiber, Head of the Commercial department at A&S Chronora, agents of Rolex, said that watches sales could drop by over 30 percent.

“The local market used to compete with Dubai when it came to VAT refunds. With the new proposed refund reduction, duty-free shops and retailers in neighboring countries will benefit from a shift in tourists’ spending patterns,” Moukhaiber said.

The latest 2012 Global Blue report said jewelry and watches came second in terms of refund value in the local market, after clothes spending. It registered the only increase in spending, growing by 15 percent year-on-year.

Moukhaiber said that local consumers’ restrained purchasing power, coupled with the drop in the number of tourists, means retailers will have to rely mainly on expatriates for watches sales.

“The government decision will also affect expatriates’ expenditures. This clientele category is very well traveled, and the drop in VAT refunds will push them to compare prices and favor foreign markets.”

“Even a loyal Rolex client, belonging to a certain social class, cares about tax refunds,” he said.

Accordingly, stores will be forced to offer extra discounts and decrease their profit margin to retain clients and maintain positive growth under these circumstances. Foreign clients, including expatriates, make up to 60 percent of the sales value of the local Rolex boutiques.