Impact of VAT on Consumers in UAE
VAT was introduced in UAE on January 1, 2018 and is an indirect tax charged on the consumption or use of goods and services at each point of sale.
VAT-registered businesses collect the amount on behalf of the government; consumers bear the VAT in the form of a 5 per cent increase in the cost of taxable goods and services they purchase in the UAE.
Even though the rate is low as 5 percent, this will increase cost of living and thereby affecting purchasing power of consumers in UAE.
Value added tax (VAT) has been levied on electricity and water charges, gold adornments, vehicles, fuel, garments, diversion, correspondence administrations and various different things. Shopaholics have faced dilemma in purchasing goods and services now as their prices have been increased due to additional tax cost.
VAT implementation has benefited the UAE government in overcoming the budget deficits caused due to declining oil prices which resulted in low revenues in UAE. However, the imposition of VAT has affected the spending power of consumers that includes both locals as well as tourists.
This has affected the spending power [of visitors who will be forced] to buy an alternative product with a lesser price, or postpone [or cancel] the purchase altogether. Generally, a 5% VAT may be hardly noticed by consumers in the UAE, especially as certain food items, essential medical healthcare and education are exempted but there are many households and lower income workers who will feel the pinch.
As VAT is levied on luxury items, services, entertainment and leisure, many households have chosen to limit spend on them as when necessary. VAT has provided the UAE Government with a new source of income, but middle-class people still hold their budget tight. Employees are relying to a hike in their salaries, so that the rise in cost of living due to VAT gets compensated.
VAT implementation has positively and negatively affected the economy as well as consumers. Among the positive impacts, the VAT implementation has promoted Tax compliance and also helped in promotion of savings and investment by consumers.
VAT will have minimum impact on your daily lifestyle if you plan and manage your purchases and finance accordingly. You can avoid spending money on unnecessary items, filter your expenses and spend money on things you need.
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FTA Update – VAT Guide issued by FTA for clarity of Apportionment