DED warns businesses against unjustified price hikes

DED says companies should not use VAT as reason to increase prices

19:40 January 10, 2018
A shopper checks a receipt

Abu Dhabi/Dubai

Abu Dhabi’s Department of Economic Development once again warned businesses not to raise prices without any justification due to implementation of Value-Added Tax (VAT).

A top official at the Department said that retailers should produce justification to any price hikes.

The warning comes after complaints from people that some outlets are overcharging customers in the name of VAT, which was implemented across the UAE from January 1.

“If outlets say that they raised prices by a certain percentage because the [price of] inputs for services they provide has gone up, this is justifiable. If not, it is a different story and we will apply the law,” said Khalifa Salem Al Mansoori, undersecretary of Department of Economic Development in Abu Dhabi on the sidelines of UAE Economic Outlook Forum.

“If someone says I went to this store and this product was Dh100 and now it is Dh120, I need to see the proof. If someone raises without justification, we will go and apply the law,” he said, explaining further.

The Department will continue carrying out inspections at various outlets and stores to ensure that there are no violations on price increases.

“We did a proactive inspection before the introduction of VAT and we did follow-up inspection visits with different retailers and outlets. We will continue the process,” Al Mansoori said.

The Department has received more than 300 enquiries since the introduction of VAT last week with most related to the application of VAT in different sectors.

Industry experts said that the warning from the Department of Economic Development is meant to make sure that retailers do not take undue advantage from VAT — a practice known as profiteering, which is illegal in many jurisdictions.

Surandar Jesrani, partner and chief executive officer at Morison MJS Tax Consultancy, said that VAT is an indirect tax, meaning it is not a cost to companies in most cases. Thus, retailers cannot increase their prices simply on account of VAT.

“Whatever VAT [retailers] pay on procurements is available recoverable input tax to them against their output VAT, so it does not increase their cost of procurement of affect their margins substantially in most of the cases,” he told Gulf News via email.

Jesrani added that UAE authorities are taking measures only against unjustified price increases.

“If international brands or other companies want to increase price, then there is no restriction but they should be ready to substantiate that the reasons for their price increases are not because of VAT,” he said.

And while some retailers are using the new tax as justification for raising their prices, others are absorbing it altogether and not hiking their prices to reflect VAT.

PAN Emirates Home Furnishings, for example, said it will not be charging its customers VAT during 2018. The company said in a statement that it will be “completely absorbing” the charge and will not mark up its prices as it “[doesn’t] want to dissuade customers from purchasing essentials as well as luxury goods from PAN Emirates because of VAT.”

Similarly, Pure Gold Jewellers said that it will be absorbing VAT on all gold and diamond products purchased throughout January.

So was the case at retailers selling big-ticket items such as automobiles, with Al Futtaim Motors announcing it is “locking” its prices in a promotion on some cars.

Analysts said this was to lure consumers — at least until retailers can assess the impact of a 5 per cent tax. Analysts also pointed that though the tax was only at 5 per cent, it would impact consumer psychology and buying behaviour especially as it is introduced in a region long known for its tax-free shopping.