More information has come to light about VAT in the UAE and it’s not good. Water, Electricity Bills & All Food Items are To Be Affected By VAT.
Another shocker that came to light is that all food will be subject to VAT. We previously expected some basic food items to be exempt from VAT according to statements from officials. Staple food like bread and rice was especially thought to be exempt but it recently came to light that all food items will be affected by VAT.
The authorities are very optimistic and excited about the implementation of VAT as it is expected to generate [12 billion AED] for the country in its first year. Residents, on the other hand, are, however, dreading it.
According to forecasts, the cost of living is expected to increase by 2.5% after the implementation of the VAT.
Tourists visiting Dubai
The UAE has already implemented an Excise tax on energy drinks, tobacco and sugary drinks as of the beginning of October. This is referred to as sin tax as these products are bad for people’s health.
Tourists visiting Dubai will at least be able to claim VAT back on purchase made during their holidays and items such as education, health-care, residential property & local transport will be either be exempted or zero-rated.
Also, VAT Will Likely Affect The Retail Sector in Dubai. At the end of the day, as with all VAT systems, the end-consumer will most likely bear the total cost.
The UAE announced earlier this year that they are going to start implementing 5 percent VAT across the UAE as of January 2018. It was decided to implement the VAT in order to find an alternative income stream for the country to pay for things such as public services.
It is expected that during its first year, VAT in the UAE will bring AED 12 billion into the country but now the question remains, how will it affect the retail sector?
Even though some people really can’t get through the day without their smartphone by their side, consumer electronics are at the end of the day just ‘nice to have’ products. All electronic devices will thus see a 5 percent VAT increase which retailers will most likely not absorb. These items include televisions, computers & smartphones.
Groceries shouldn’t be affected, too much
Your grocery bill shouldn’t be affected too much, depending on how luxurious your grocery list is. Approximately 94 key food items will be exempt from VAT leaving some of your grocery bills the same. If you are, however, going to be buying items such as fizzy drinks, ice cream, cheese and other similar items which aren’t vital for survival, you will be paying VAT.
Products with high elasticity of demand will be affected, but consumers might not feel it. High elasticity of demand in short means that the demand for a product is dependent on the price. If prices increase, the demand decreases and vice versa. Retailers will have to absorb the costs of these items, such as appliances, in order to remain competitive and relevant.
Luxurious items will be affected, but consumers will most probably not even notice it. If the retailers are nice, they might absorb the VAT on behalf of consumers Previously being a “no VAT zone” meant that retailers could add huge markups to their prices. Whatsoever, Dubai retailer has some of the highest markups in the world.
With the extra mark up on products, some retailers might just absorb the VAT completely on behalf of their customers. This will however only be in certain cases and more specifically applies to white goods.
Companies will be fined if they don’t register for VAT. All companies with a minimum annual income of [AED 375,000] need to register for VAT. If they don’t they will be fined by the UAE’s Federal Tax Authority [FTA].