XM -Blog

A Month After VAT

February 1st, 2018

UAE VAT Implementation

There was something unique about New Year’s Eve 2017 in the UAE. Before proceeding with their New Year’s Eve plans, many of us flocked to supermarkets to stock up as much as we could for coming months. No, it wasn’t a doomsday prophecy that got people lining up at stores; it was in fact, the implication of 5% Value Added Tax on goods and services applicable from from 1st January 2018. It has been a month since VAT was imposed.

Teething Issues

Just like anything new, people took a while to adjust to Value Added Tax. As noted by UAE’s Minister of Economy, the department received 3261 complaint calls from customers regarding price hikes, tax registration numbers and erroneous calculations. Within days, the number of calls reduced to a few hundreds. The government has taken key steps to prevent unjustifiable price hikes and keeping a close eye on traders and sellers across the country. After a month, people have gotten quite accustomed to this new tax.

Problem with change

Now here’s a bit of a tricky situation for customers and traders alike. The current currency denominations in the UAE are not fully compliant to the strange 5% increase in prices. For example, people who were paying AED 1.50 for a cup of karak chai, are now paying being billed AED 1.60 for the same cup of Karak Chai. Unfortunately, 25 fils being the minimum denomination, customers are either paying AED 1.75 – AED 2 for the same tea or the seller is absorbing the cost by letting go of the 10 Fils While this might not appear to be a big loss; but if you calculate the number of karak chais you consume in a year, the loss to lose change could be significant.

Budget Reevaluation

For individuals and families in the UAE, the implication of VAT meant that they needed to rethink their budgets. While expenses such as education, house rent, public transport, healthcare, among other essentials services, are exempt from the 5% tax, people now must pay slightly more on their utility bills, chiller fees, school transport, grocery and other commodities. People in the UAE have started spending a little more carefully; which is always a good thing. People are also becoming more proactive in looking for great deals on the things that they want to buy. Fortunately, for people sending money back home, VAT is not applicable on the amount being sent. People will only have to pay VAT on the remittance fees, which makes the price hike in remittances almost negligible.

The 5% VAT, which is one of the lowest VAT rates around the world, has not had too big of an impact on the way people are spending money. The residents of UAE have welcomed this move by the government, considering its positive impact on UAE’s development and competitiveness. The VAT is aimed at providing additional financial resources to enable the government to realize its strategy for a prosperous future.