The burden of VAT needs to be borne by someone – either the businesses or consumers or both. The companies can avail the Input Tax credit paid to the suppliers or service providers and pass the burden to the customers. Hence by registering for VAT, the increase in cost due to VAT can be shifted to the customers. At the same time, indirectly, the operating cost of the company is likely to go up while implementing VAT. Additional costs for the company will be on:
In short, there will be a hike in the operating cost of the business. The depth of the increase in cost depends mainly upon two factors:
The Tax concept is not totally new for the business community in the UAE. Certain taxes like customs duty, municipality taxes, tourism fee, property tax, rental tax etc are already there. But VAT (Value Added Tax) is a new concept in the UAE. Let us see how VAT will impact the companies as well as the individuals in the UAE.
The impact of VAT on blue-collar workers will be negligible since many household expenditure items and public transport are exempted from VAT.
There will be a hike in the price of the items and services which are not exempted from VAT. Hence the increase in the cost of living of individuals will be there to a certain extent. But this will vary depending upon the individual’s spending pattern and lifestyle. If one is to spend mainly on items that are not attracted by VAT, then the cost of living of the individual is unlikely to have any significant increase.
The living cost of High Net worth Individuals will go up, other than for the exempted items such as healthcare, residential property, education and selected household items. Being the HNIs, the nominal increase (5%) in some of their expenses will not have any material impact on their overall cost of living.
In short, the VAT rate in the UAE (and in GCC) is the lowest compared to other countries. The introduction of VAT in UAE will not have a significant increase in the cost of living as well as the cost of operation of the companies in the UAE.
Mr. Pradeep Sai
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