Impact of VAT on Consumers in UAE

Jay krishnan, Partner


All these years you would have enjoyed a tax-free life in the UAE, but with the introduction of VAT on January 1st, 2018, your life is bound to change. Even though the rate of VAT is as low as 5 percent, the cost of living is going to increase, which will have an adverse effect on the purchasing power of consumers.

VAT will provide the UAE with a new source of income, but middle-class people will have to hold their budget tight. Employees are looking forward to a hike in their salaries, so that the current rise in cost of living gets compensated.

VAT has been imposed on electricity and water bills, gold jewellery, cars, fuel, clothes, entertainment, communication services and numerous other items. Shopaholics might have a tough time since they will have to think twice before purchasing their favourite pair of shoes or watch. If you are planning to buy gold, you will have to pay 5 percent tax on the whole piece rather than on the making charges. So, if the ornament is worth Dh1,000, you will have to spend an additional Dh50, to grab the jewellery. This might put at least some consumers in dilemma, whether to buy it or not. Consumers will have to face similar situations, while they are on a shopping spree.

However, consumers can breathe a sigh of relief as certain items and services have been exempted from VAT, that is zero rated. VAT will not be charged on nursery school, pre-school, elementary school and government-funded university fees. But tax is applicable for certain school accessories such as pencils and notepads as well as school uniforms and bus fares.

People using public transport and international flights need not worry about tax, since these services are excluded from tax. Also, you don’t have to bear the burden of VAT on certain financial services such as loans, mortgages and life insurance products.

If you plan well and manage your finances properly, VAT will have minimum impact on your daily life. You would have spent money on unnecessary items all this while; filter your expenses and spend money on things you need and love!

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