How VAT in UAE Will Affect the Common Man

The tax-free life of the citizens of the UAE came to an end on 31 December 2017 by the implementation of Value Added Tax by the Emirates. The GCC countries agreed to impose a rate of 5% tax on certain goods and services from 1 January 2018. Though the VAT rate is minimal compared to other countries in the world, it will surely affect the overall cost of living in the region. The principal advantage of VAT is that it brings additional revenue for the government to better the public services. Read more to know about How VAT in UAE will affect the common man. 

VAT Categorisation 

Goods and services are alienated into three categories on which VAT will be applied:

1. VAT Exempted Category:

It includes Health Sector, Education, Food and rent, local passenger transport, corporate businesses, first-time property buyers, residential leases and land buyers.

2. Zero percent VAT :

This category includes goods and services listed for export and international services, precious metals, certain education, and health services and supplies, residential properties that are newly constructed and supplied within three years.

3. Five percent VAT :

This includes electronics goods, clothes, food, fuel, communication services, entertainment, etc.

How does VAT affect the common man?

Wise spending assures financial security and peace of mind. The effect of VAT on a common man entirely depends on one's lifestyle. There will be a minimal rise in the cost of living depending on the lifestyle and spending preferences of the individual.  If an individual perseveres with purchasing things that are taxable and keeps on an expensive lifestyle, the expenditure is supposed to increase. But if one spends more on items that are not attracted by VAT, the cost of living of the individual will be implausible to have any significant increase.

The Sectors that VAT affects the common man
    
Sectors like high-end goods, latest electronic devices, smartphones, cars, jewelry, watches, eating out, entertainments and luxury items will attract a VAT rate of 5%.

If you are shopaholic, you have to spend more on clothes, accessories, shoes, etc. as 5%VAT will be charged on these items. 

Financial services like bank charges, electronic transfers, etc. will also attract the same 5% VAT.

Entertainment areas like amusement parks, staycations, etc. will all also cost five percentages extra. The tourism sector will also attract the same. Perfumes, make-up, luxury bags and big-ticket items will cost more, but the tourists will get the refund of VAT levied on their purchases at some point when they depart UAE.

Non-essential things like electronic items and home appliances will cost more. Suppose you want to buy a new mobile phone that costs Dh 3000, then you have to pay an additional cost of Dh 150 as VAT. 

Sectors that are exempted from Tax 

GCC states have come to an agreement that the rent, health care sectors, education sectors, and around 94 food products will be exempted from VAT.  That means your house rent, grocery, hospital or school bills will not be affected by VAT. Tax will not be charged on nursery school, pre-school, elementary school, and government-funded university fees. But it is applicable for certain school accessories such as pencils, textbooks, school uniforms, and bus fares.

Will VAT affect Prices/Margin?  

The new tax policy VAT has been comparatively doing well in branching out government revenues without producing too much inflation.
There will be no changes in rent due to tax as it is exempted from VAT, but consumers should pay more for utilities like water and electricity as they attract a 5% tax, which may affect their monthly budgets.
Purchasing a car will be costlier in the UAE due to 5% VAT and you have to spend more on your driver’s license, parking, insurance, and car registration. At the same time, local public transport and international flight charges are exempted from VAT.
Dining at your favorite restaurant or sharing a drink at an inn or pub with your friends will also be costlier. But, since a balance is maintained in many areas, a price hike due to VAT may not affect the common man’s pocket much if he/she approaches the market prudently and handle the situation wisely. 

Why choose CDA  Audit Firm

In general, VAT will increase the cost of living in the UAE. However, it depends on your financial planning and spending habit. If you plan your finances in a better way, you can make sure that VAT has minimal impact on your life. Better, measure your expenses and create a budget for the month to get rid of unnecessary expenses. Bear in mind that an increase of five percent will not disrupt your bank balance and dislocate your life unless you indulge in unwanted spending habits. 

Be elegant and plan your finances accordingly in a much better way so that you can trounce this small obstacle. The CDA Tax consultants can help you to clear your doubts and lead you to clarity. Do get in touch with us. 

We offer our services in VAT consultation, Due diligence, Accounting and Bookkeeping, and all other tax-related issues.