How will the 5% VAT affect UAE consumers?
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By Aimee Mhaolcraoibhe
With the implementation of VAT on the 1 st January 2018 at a 5% rate within the UAE will have an
immediate impact on residents, tourists and accounting or financial professionals as much as it will
on businesses. Although there is a list of 100 exempt items from VAT that encompass the daily
necessities, there will still be times where consumers will need to pay the tax on the goods and
services that they purchase. That said, experts have said that they do not expect the new VAT to
impact on sales at the 5% rate that is set, unlike countries such as the UK or USA where the rate of
tax is double that.
For consumers that take on car loans they will have to consider the extra result of the VAT on their
monthly payment, which may or may not change their decision making process and opting for a
more economical car, as the ongoing price of petrol will also be a consideration consumers will take
seriously. Since it is a flat rate consumers can expect to see the cost included in the price tag, so the
new price inclusive of VAT will be what is advertised for the product.
For tourists, the addition of VAT on purchases made in the UAE will at times result in double
taxation, as the tourist is also responsible for paying importation taxes at customs upon return to
their home countries. Since all GCC countries have agreed to adopt the new 5% rate of VAT on all
nonessential items by the 1 st January 2018 there will be a level playing field between countries for
attracting tourists looking to spend large. However, until the final date there may be a tendency for
tourists to opt for an alternate GCC country for holiday if they can beat the deadline in another
Residents and tourists in the UAE who buy high ticket ‘luxury’ items such as mobile phones,
televisions, laptops and vehicles will be the people who see the biggest change in their spending as
the 5% tax on nonessential items will be added to each sale. This may result in consumers deciding
not to buy the latest model laptop or mobile phone if their current model is still working. In this way
there could be less spending taking place unnecessarily or without a great deal of forethought!
For the accounting professional, the industry is about to explode with work. Businesses of all sizes
will be flocking to their local accountant or financial professional for advice in integrating the new
VAT requirement into their business. There will be many businesses that will look to a professional
to explain how they are supposed to comply with this new law, so it is more than likely that
accountants will find themselves taking on new work over the coming years. The size of accounting
and financial firms is likewise set to increase as existing firms take on new employees to cover the
increasing demand for services.