VAT has not killed off freedom of choice

Customers can always take their money elsewhere but government should look out for collusion between firms

Gulf News
17:44 January 10, 2018

The announcement that both Abu Dhabi and Dubai are cracking down on companies gouging consumers in the name of value-added tax (VAT) is a move welcomed by the entire nation. Any company caught taking more than the 5 per cent prescribed by law should be treated as a thief, and this includes any companies caught manipulating prices solely for the purpose of lining their pocket.

But amid the complaints of some legitimately aggrieved consumers, there is also a growing number of cries coming from consumers looking to vent their misplaced ire over the new tax at legitimate price increases. These consumers are forgetting two basic facts. First, that the implementation of the VAT was always going to result in an increase in prices exclusive of the new tax, and second, the UAE is a free economy.

While the government has the right to set prices needed to protect consumers — especially in regards to basic necessities — most businesses here are private entities that have the right to determine the prices of their goods and services.

Equally, consumers have the right to refuse to purchase those goods, and instead spend their money elsewhere. Companies which refuse to make their prices competitive will quickly lose customers, risking permanent damage to both their reputations and their revenues.

But consumers need to understand that this 5 per cent they are being charged only reflects the official tax. There is more to it than that. Companies trying to ensure their own tax compliance are hiring tax consultants and lawyers. These additional costs are affecting their bottomlines and some are compensating by increasing their prices. Anyone who says these companies are raising their prices too much needs to remember what we said earlier: you can take your money elsewhere.

Some consumers will not like this. Some people think they have a legal right to buy certain products at set prices. They do not.

However, this does not mean consumers are at the mercy of companies. The government should still be on the look out for collusion. A free economy only works when companies act as competitors — not friends.

There could be a greater risk of collusion in the GCC than elsewhere due to the large number of companies that own multiple brands, some of which should be not be under the same umbrella. Regional governments may need to start looking at “trust busting” to prevent the formation of monopolies that could hurt consumers.

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