How VAT in UAE Affect the Common Man
The Value Added Tax was imposed by the Emirates on December 31, 2017, ending the tax-free life of UAE nationals. The GCC nations decided to tax some goods and services at a rate of 5% started from January 1, 2018. Even if the VAT rate is low in comparison to other nations, it will undoubtedly have an impact on the region’s total cost of living. The main benefit of Value Added Tax (VAT) is that it increases government revenue, which may be used to improve public services. Learn more about the impact of VAT on the average person in the UAE by reading on.
VAT Categorisation
Three categories are used to separate goods and services, and these are the ones where VAT is applied:
1. Category Exempt from VAT:
The health sector, education, food and rent, corporate businesses, first-time home buyers, residential leases, and land buyers are all included.
2. VAT at zero percent:
This category comprises products and services marked for export and worldwide services, precious metals, certain health and education services and supplies, and newly built homes that will be occupied within three years.
3. Five percent of VAT
This covers products including technology, apparel, food, fuel, and entertainment as well as communication services.
What is the average person's impact of VAT?
Careful spending ensures mental and financial stability. The way a person lives determines how much of an impact VAT has on the average guy. The cost of living will only slightly increase based on each person’s purchasing habits and lifestyle. The expenditure is expected to rise if a person continues to live an affluent lifestyle and buy taxable items. However, it is improbable that an individual’s cost of living will rise much if they spend more money on non-VAT things.
The industries where VAT impacts the average person
A 5% VAT charge will be applied to some industries, including luxury products, the newest electronics, cellphones, vehicles, jewelry, watches, dining out, entertainment, and high-end goods.
Spending more on clothing, accessories, shoes, and other products will incur an additional 5% VAT if you are a shopaholic.
Financial services will likewise be subject to the same 5% VAT, including bank fees and electronic transactions.
Amusement parks, staycations, and other entertainment venues will all incur an additional five percentages of cost. The travel and tourism industry will draw similar people. Luxurious bags, perfumes, makeup, and expensive goods will cost extra, but when travelers leave the United Arab Emirates, they will eventually receive a refund of the VAT they paid on their purchases.
Appliances and electronics are examples of non-essential items that will cost more. Assuming you choose to purchase a new phone for Dh 3000, you will also be required to pay Dh 150 in VAT.
Industries Free From Taxation
The governments of the Gulf Cooperation Council (GCC) have decided to waive value-added tax (VAT) on rent, healthcare, education, and about ninety-four food items. That implies VAT won’t have an impact on your rent, groceries, medical expenses, or educational expenses. Nursery school, pre-school, elementary school, and government-funded university expenses are exempt from taxation. However, it does apply to specific school supplies including textbooks, pencils, school uniforms, and bus costs.
Does VAT impact margin and prices?
The recently implemented tax policy Comparatively speaking, VAT has been effective in diversifying government revenue sources without leading to excessive inflation.
Since rent is not subject to VAT, there won’t be any tax adjustments. However, customers will have to pay extra for utilities like electricity and water because they are subject to a 5% tax, which could have an impact on their monthly spending plans.
Due to the 5% VAT, buying a car in the UAE will cost extra money. You will also need to pay more for parking, insurance, driver’s license, and automobile registration. VAT is also not applied to international airline fees and local public transportation costs.
It will also be more expensive to eat at your preferred restaurant or to enjoy a drink with friends at an inn or bar. However, as many things are kept in balance, a price increase brought on by VAT would not have a significant impact on the average person’s wallet provided they approach the market sensibly and manage the circumstance sensibly.
Why choose IBR Group?
In general, VAT will make living in the UAE more expensive. It is dependent upon your spending habits and financial preparation, though. You may ensure that VAT has as little of an impact on your life as possible by improving your financial planning. Better still, track your spending and make a monthly budget to cut out on wasteful spending. Remember that unless you engage in unwarranted spending habits, a five percent rise won’t ruin your finances or upend your life.
To overcome this minor challenge, act elegantly and more wisely when making financial plans. You can get clarity and assistance from the tax specialists at IBR Group. Don’t hesitate to contact us.
We provide our services for all tax-related matters, including accounting and bookkeeping, due diligence, Corporate Tax and VAT consultancy.