Thoughts on the 5% Value Added TAX coming to the UAE?
Hi James , How are you ? Remember you at Tony Gurr's. Hidden VAT in Dubai has always been there...Yes I care! We pay over the odds for most
As a consumer is this going to be the tipping point for you and make you think about moving on?
As an employer will you consider the VAT in your salary considerations?
Dubai: The impact of a value-added tax (VAT) system on consumers in the UAE may vary depending on household incomes and spending behavior, and how much will be levied on goods and services, analysts said.
Considering the purchasing power of residents in the country, a 3 per cent to 5 per cent VAT may generally be hardly noticeable, especially if the essential food items are exempted, but a tax rate of 10 per cent or higher is clearly seen to have a negative impact on consumer spending.
“If [VAT] is implemented at low levels, say 3% to 5% on luxury goods, then the impact on low-income families will likely be negligible”-Andrew Prince, deVere AcumaTweet this
Those who love to shop for big-ticket items or upgrade their gadgets and cars more often than others will mainly bear the brunt of tax collection. As long as the VAT rate does not exceed 5 per cent and food essentials remain untaxed, low-income families have nothing to worry much about, according to the experts.
“If [VAT] is implemented at low levels, say 3 per cent to 5 per cent on luxury goods such as computers and cars, then the impact on low-income families will likely be negligible. [But] those who regularly purchase the latest smartphone or upgrade their car are the ones to shoulder a greater portion of the burden,” said Andrew Prince, financial planner at deVere Acuma.
“That said, even a VAT at 5 per cent on a Dh200,000 car would only increase the price by Dh10,000, which if spread over a typical loan tenure of five years, would increase the monthly payments by about Dh170.”
The introduction of tax reforms has long been discussed in the Gulf Cooperation Council (GCC) region. In the early 1990s, a feasibility study was conducted to test the implementation of corporate taxes and VAT.
Talks on the subject later fizzled out and it is only recently when economies in the region are facing budget deficits due to oil price decline that the proposal is again gaining strong interest.
Alp Eke, senior economist at the National Bank of Abu Dhabi (NBAD), said that a VAT rate of 5 per cent will be “negligible” or “slightly noticeable in the UAE.
However, he said that based on various surveys conducted in the United States and Europe, a VAT rate of 10 per cent or above would definitely have an impact on consumer spending.
“[This is especially true] on luxury items, such as spending on restaurants, electronics and entertainment.”
Prince said that introducing tax reforms in the UAE is essential since the country needs to find other revenue sources to sustain investment infrastructure and the well-being of its residents. “It is generally accepted that some form of taxation is actually a good thing, as it helps diversify away from reliance on hydrocarbons for revenue and maintains sovereign wealth,” Prince said.
“We saw recently the removal of subsidies for petrol as a perfect example of ‘balancing the books’.”
However, some businesses in the UAE expressed concern that the collection of VAT would discourage shoppers, including tourists, from opening their wallets.
Karen Patel, marketing manager of 2GIS Middle East, said the proposal could result in double taxation for visiting shoppers, considering that people who purchase imported goods are also liable to pay taxes once they travel back to their home countries.
“[The UAE] is among the most preferred shopping destinations in the world with a huge influx of tourists that contribute significantly to the GDP of the country. The biggest attraction, apart from being a world-class city is the tax-free economy for the tourists and the expat residents,” Patel said.
“The imposition of VAT will have a huge effect on the buying power of both the [residents and tourists]. It is well known that most tourists and residents will have to pay duty tax again on certain goods in their country of origin.”
To avoid burdening consumers, Patel said it would be a good idea to implement VAT in phases and exempt certain consumer goods.
Other companies who also deal with tourists in the UAE expressed the same concern, adding that any tax collected could limit visitors' spending power.
“Any amount gone out of [tourists’] pockets is their expense, whether it is in the form of VAT or tax. This will really affect the spending power [of visitors who will be forced] to buy an alternative product with a lesser price, or postpone [or cancel] the purchase,” added Dinesh Joseph, senior manager for accounts at Fast Rent A Car, which caters mainly to tourists.
The GCC has confirmed that it will bring in VAT at 5 per cent on January 1, 2018.
Obaid Humaid Al Tayer, Minister of State for Financial Affairs, said: “The implementation as per the GCC Supreme Council resolution will be implemented as of January 1 2018, and other countries can take a later date of implementation on January 1, 2019.”
As the price of oil continues to fall, those nations whose gross domestic product (GDP) has relied on its revenues are being forced to diversify their economies. Naturally, the only real way to fill the void left by lost oil revenue is taxation.
But how will the implementation of value-added tax (VAT) affect you? Guides has picked through this Gulf News report and highlighted the important facts that you need to know.
1. VAT is due to be implemented at the beginning of 2018
2. When introduced, the initial rate of VAT is likely going to be between 3-5 per cent
3. Staple food items will remain exempt from VAT
4. Healthcare, education, and social services will also be exempt from VAT
5. The government forecast between Dh10 billion to Dh12 billion revenues from VAT in the first year
6. It is a crucial step in ensuring a stable economy which is less reliant on oil revenue
7. VAT will be introduced across the wider GCC region, and not just the UAE
8. The retail sector will be protected as much as possible, with price increases not being too much of a shock to middle and low income earners