How will UAE's VAT affect your pocket?

Dubai - The UAE will join the club of nearly 150 countries by implementing value added tax (VAT) from January 1, 2018. In this series, Khaleej Times explores VAT, why it is needed and how it will impact residents and businesses. Part 1 of a 5-part series? on all that you wanted to know about VAT.

Since the rate of VAT will be fixed at five per cent, industry leaders Khaleej Times spoke to said its impact could be negligible, especially if the essential food items are exempted. So it's not likely to impact consumer spending, they added. The rate of VAT is three times more in majority of the countries where the tax has already been implemented.
The UAE Government has already announced that 100 food items, health, education, bicycles and social services would be exempted from VAT. In the Gulf region, five other countries also are working on a framework to implement it.
Once the framework agreement on implementation of VAT is reached, GCC countries have one year from January 1, 2018, to implement it. Each Gulf country has the flexibility to introduce VAT within this time frame.
A lot of groundwork needs to be done before implementing VAT. The private sector will need time to prepare for complying with tax rules. An estimated Dh12 billion will be generated by the VAT in the first year in the UAE.
Last month, finance ministers of the Gulf countries met on VAT in GCC and had approved the introduction of the tax. Its framework agreement will be finalised in the next meeting of the finance ministers in October 2016.
"There is still speculation on whether the VAT regime will add to inflation. At the ground level of the common man, the impact will be minimum. However, at the high end and luxury segment, the impact could be much higher (cars, real estate etc.)," C. A. Krishnan Ramchandran, CEO of Dubai-based Barjeel Geojit Securities, told Khaleej Times.
Atik Munshi, partner at Crowe Horwath, UAE, commented: "VAT will have an impact on nearly all the residents and visitors of the UAE as only a few staple food items, education and healthcare are exempted from the same."
Dr Nasser Saidi, president, Nasser Saidi & Associates, said: "The initial impact would be on the consumers given this is a consumption goods tax. Prices of taxable goods would rise by about 5 per cent. It is important to note that this is a once-for-all effect on prices, a temporary increase in inflation when the VAT is imposed. There is no continuing effect on inflation."
Shan Saeed, chief economist at IQI Holdings Malaysia, said: "It would contribute merely 1-2 per cent in price inflation. It won't make any impact on the consumer spending." Saeed added that countries that are following VAT are doing economically, socially and financially stable.
Jitendra Gianchandani, FCA, chairman & managing partner of Jitendra Consulting Group, said: "VAT is an indirect tax and will directly impact the ultimate consumers, especially low income group and tourists. And it will lead to inflation."
Last month, CFA Society Emirates had unveiled the results of its survey on VAT impact on the UAE and more than 80 per cent respondents said this would lead to higher inflation rates. They feared that demand for luxury goods will be affected the most by additional VAT costs, followed by cars, then tobacco and real estate.
All you need to know
1 Date of implementation: January 1, 2018
2 VAT rate: 5%
3 What are exempted: 100 types of staple food, and other essential service sectors such as healthcare and education
4 What are not: Electronics, smart phones, cars, jewellery and watches, eating out and entertainments
5 Inflation fears: It will have minimal impact on residents with less appetite for luxury goods, services and lifestyles. It will not stoke inflation for the common man as vital household expenditure items are exempted from its ambit
6 Common man: While the impact of tax on property transactions will be limited to the wealthy or those above upper middle income group, a likely hike in the cost of financial services will hit the common man. VAT will also have an effect on the buying power of tourists as they will have to pay duty tax again on certain goods in their country of origin
7 Dh12 billion is the estimated revenue to be generated by the UAE through VAT in the first year

The UAE will join the club of nearly 150 countries by implementing value added tax (VAT) from January 1, 2018. In this series, Khaleej Times explores VAT, why it is needed and how it will impact residents and businesses. Part 1 of a 5-part series? on all that you wanted to know about VAT.?
abdulbasit@khaleejtimes.com 

• VAT in UAE: All you need to know