The implementation of value added tax (VAT) in the UAE – set to take place from January 2018 – will have the biggest impact on consumers, according to experts.
While details about the tax are yet to be disclosed, officials have confirmed that it will be charged at 5 per cent with around 100 items set to be exempt. These are anticipated to include essentials such as food, education and healthcare.
“VAT is not a tax on sales; it’s a tax on consumption and it sticks with the final consumer,” said Martin Dane, associate director of VAT and Indirect Tax – UK at audit and accountancy firm RSM.
Speaking at an event in Dubai, he affirmed that the tax is passed on through the supply chain until it finally reaches the consumer. Hence most businesses can maintain tax neutrality, and in fact become tax collectors for the government.
However, it is not necessarily true that consumers will feel a direct 5 per cent hike in prices once the tax is implemented, added Vishaal Shah, CEO of Panache International.
“Many international brands could continue to offer products at the same retail price because the prices will be factored in at the origin,” he said.
According to Shehab Gergash, managing director of Daman Investments, while consumers know the tax is coming up soon, the actual impact of what it will mean will only be known once it is implemented.
“Of course you are going to hear complaints about everything being more expensive. But people will learn to live with it. I think, gradually, everyone will be habituated with it,” he added.
One thing that all the experts agreed upon is that more clarity and preparedness will only be visible in the market once details about the VAT policy are clearly outlined by authorities. The government is hoped to reveal all the information later this month.
“Businesses in the UAE will surely feel an impact from consumers, depending on their habits and perceptions following VAT,” said Gergash.
“If their habits change – if they view brands or products as being more expensive – it will surely impact the whole chain.”
The introduction of VAT in the UAE and across the GCC was announced to help regional governments make up for the significant drop in government revenue caused by falling oil prices.
GCC finance ministers held an extraordinary meeting on June 16 in Jeddah and approved in principle VAT and excise tax treaties.
The formal announcement of the treaties is expected in this quarter.
Also read: To tax or not : How VAT will impact the UAE