vat

Segments impacted by VAT

Broadly speaking, every good or service that can be consumed by the population will have 5 per cent added

14:39 September 4, 2017

What we do know with certainty is what goods and services will be taxed under the new VAT regime coming in to force in 2018. Broadly speaking, every good or service that can be consumed by the population will have 5 per cent added on to its final price. Here, we have tried to segment the goods that will be taxed into key categories.

Food
Whilst many staple foods, such as rice, will be exempt, the vast majority of food and drinks will increase in price by 5 per cent when VAT is introduced. This includes food from takeaways, restaurants, and supermarkets. Even dishes made with staple foods, such as a biryani made from rice, will see a 5 per cent tax hike when ordered in a restaurant or from a takeaway come January 1, 2018.

Hardware/Appliances/Electronics
Predicted by analysts to be one of the hardest hit segments, the appliances sector is typically one of the first to see a decline in sales when prices rise or disposable income drops. All electronic gadgets, home appliances, and tools will see a 5 per cent increase in price from 2018. That means laptops, smartphones, and tablets will all be getting more expensive. People tend to see such goods as a luxury, and, as a result, cut back on them when prices go up.

Automobiles
When the International Monetary Fund issued its advice on tax to the UAE back in 2015, it suggested a 15 per cent tax on cars, in addition to a 5 per cent VAT. Whilst the UAE did not take the IMF’s advice on cars, it will implement a 5 per cent VAT on automobiles, meaning that the cost of vehicles will rise. Some analysts predict this may see a late flurry of new car sales in the final months of this year, whilst others project trouble for the car industry luring new buyers once prices rise.

Soft consumer goods — apparel etc
The sales of garments will all be taxed at 5 per cent now as a result of VAT, meaning that multinational retailers such as H&M will have to face the choice of either absorbing some of the costs, or hiking their prices. A Euromonitor International analyst told Gulf News that with margins for retailers exceptionally high in the UAE, they could afford to absorb some of the costs of VAT. Despite that, prices will undoubtedly rise for some types of clothes and some retailers. This, coupled with an already soft consumer segment due to low oil prices and a myriad of other factors, could spell trouble for the apparel industry.