3 unexpected ways VAT will change your life

March 27, 2017 10:12 am

Just 280 days from today, March 27, 2017, the six GCC nations will introduce a five per cent value added tax (VAT).

  • Cost of living will go up
  • No specific guidance for VAT on residential and commercial properties yet
  • Certain sectors, such as healthcare, education, social services and nearly 100 food items will be exempt

The countdown has begun. Just 280 days from today, March 27, 2017, the six GCC nations will introduce a five per cent value added tax (VAT).

The region’s governments have been announcing their plans and guidelines for the implementation of the new tax.

With the introduction of the indirect tax, which will be imposed on most supplies of goods and services, costs of living in the UAE, Saudi Arabia, Oman, Kuwait, Qatar and Bahrain are expected to increase.

While the most common effects of VAT have already been explained, here are three unexpected areas that VAT will impact your life.

Inflation

A survey conducted last year by CFA Society Emirates, an association for financial and investment professionals, revealed that 82 per cent of the respondents said that the VAT will lead to higher inflation rates in the UAE.

The federal government has already made it clear that the tax, which is based on one’s consumption of goods rather than income, will be implemented with the exemption of certain sectors, such as healthcare, education, social services and nearly 100 food items.

Property prices

Governments have not yet issued specific guidance for VAT on residential and commercial properties.

However, leading audit firm KPMG says real estate can cover a wide range of business operations and services that may be taxed, such as purchase of land, development of sites, sale of completed properties, sales, lease and management of developed properties in all three categories: commercial, residential and mixed use properties.

Based on KPMG’s study of VAT and goods and services tax (GST) systems in Singapore, Malaysia, Australia, and the UK, one can assume that both sale and lease of commercial properties will be taxable while residential properties will taxable on first sale but subsequent sale as well as rental will be exempt.

To put it in figures, you may pay AED50,000 extra for a property costing AED1,000,000 beginning January 1, 2018.

Implementation of VAT in UAE: 10 things you need to know

 

Cars

You will probably have to think twice before buying a new car. A basic model of Mercedes-Benz CLS 63 AMG may cost you AED518,400 instead of AED 494,000 now.

Meanwhile, Toyota Corolla 2.0L Limited 2017 will be retailed at around AED82800 in January while it is being sold for AED78,900 in March.

 

Gadgets (such as the much-awaited iPhone 8)

The prices of electronic gadgets, including phones and tablets, are set to go up.

Rumours are doing the rounds that the iPhone 8 will hit the markets towards end of this year or early next year. But to get your hands on the tenth anniversary version of Apple’s iPhone, you will have to pay five per cent extra of the actual price of the Smartphone. If it is priced at AED4,000 (say), you will pay AED4,200.

Needless to say, all the consumer electronics goods will come under the ambit of the new consumption tax.

 

This is how Dubai will feel the heat of Trump electronics ban

 

Some advice

Nonetheless, here is a piece of advice for those who live in these countries and tourists alike from the UAE’s Ministry of Finance: “The cost of living is likely to increase slightly, but this will vary depending on the individual’s lifestyle and spending behaviour. If your spending is mainly on those things which are relieved from VAT, you are unlikely to see any significant increase.”

 

Trump electronics ban: Gulf airlines know how to bypass it

Tags:

Mujeeb Rahman
By Mujeeb Rahman
Journalist
Mujeeb Rahman is a business journalist at AMEinfo. His areas of focus include economy, markets, politics and international relations in MENA and Asia-Pacific regions. An ex-BBC digital journalist, he delves deeper into the subjects that matter most.



AMEinfo EXPERTS