VAT sees UAE firm’s costs rise at sharpest pace since 2011

UAE non-oil private sector companies saw their sharpest increase in costs for 74 months in January, according to Emirates NBD’s purchasing managers’ index.

The Dubai bank’s survey, conducted by IHS Markit, found that the introduction of a 5 per cent value added tax rate on January 1 had a particular impact on the market, with wages and salaries also rising at a faster pace.

The headline PMI score stood at 56.8 from a three-year high of 57.7 in December linked to a rush of activity ahead of the tax’s introduction. At the same time the sector saw the steepest rise in input costs since November 2011.

Read: UAE non-oil private sector growth hits 34-month high

Nevertheless, companies saw a sharp rise in business activity in the form of new orders and increased job creation to its highest level since January 2017.

Output charges also increased for the first time in five months due to the inclusion of VAT in selling prices and there was a marked increase in business confidence with sentiment at its strongest since June 2015.

Panellists indicated activity would strengthen as the market familiarises itself with VAT.

“The January survey indicates that non-oil sector growth got off to a strong start in 2018, notwithstanding the slight decline in the headline index. The impact of VAT is evident in the sharp rise in input costs last month. While selling prices also increased in January, the survey suggests that the full rise in input costs was not passed on to consumer,” said Emirates NBD’s head of MENA research Khatija Haque.

The new value added tax was also introduced in Saudi Arabia and applies to most goods and services including food and beverage products, utility bills and fuel.

Read: UAE tax authority warns VAT deadline approaching