Complex Made Simple

Stop complaining about UAE or Saudi VAT: You’re getting a raise

You can’t blame UAE and Saudi residents from complaining about the 5% VAT they have to pay as of January 1, 2018, though the levy is way below European norms of 15%-20% values.

They never had to pay more for anything before.

VAT will apply to items like food, clothes, electronics and gasoline, higher education, utility bills like phone, water and electricity, and services like hotel reservations.

Big ticket items are exempt like rent, property sales, healthcare, airline tickets and school tuition.

Now it be worrisome if income tax comes into play.

Saudi Arabia in the 1950s introduced personal income, capital gains and corporate taxes, 6 months later excluded nationals, and by mid 70s suspended them for all.

But it hasn’t happened again, so there is no reason to panic because reports say that a pay raise is coming.

If it doesn’t, ask your boss, but here’s what we are hearing.

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More Money

HR consultants Korn Ferry’s 2018 Salary Forecast report (see graph) said that in the Middle East, wages are expected to increase by 3.8%, compared to 4.5% in 2017.

“In the UAE, inflation of 4.6 percent combined with pay increases of only 4.1 percent, means that real wages will fall by -0.5 percent,” it said.

“Employers in Saudi and UAE are bracing for a challenging time as they battle with managing business costs and meeting the expectations of disgruntled employees.”

According to the latest analysis by Oxford Economics, real salary growth in the UAE, which includes pay raises, promotions and moving jobs, was already at 3% in 2017.

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However, only 25% of UAE employers awarded pay increases to less than half of their staff, while in Saudi less than 50% of companies issued base salary increases in 2017.

Salaries at some companies in the UAE are still forecast to increase in 2018 according to a study by global professional services firm, Aon.

In its region-wide survey covering 600 multinational and local organisations, Aon found that employers in the UAE are expected to grant an average wage increase of 4.3%, the second-highest in the GCC, after Saudi and Kuwait at 4.5%. Oman is lowest at 4%.

Saudi Arabia gave away the biggest actual increase at 4.4% in 2017.

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Cost of living

VAT is expected to generate $3.3 billion for the UAE government, and some $2.2bn for Saudi.

Overall UAE cost of living is expected to rise to about 2.5% according to the National daily, induced by VAT and energy price increases.

Even so, many residents in the Gulf already complain the cost of living is already high.

Typically rent can easily drain up to a third of workers’ incomes in places like Dubai.

A good portion of the rest is wired abroad, leaving about a third of their salaries to live off of each month.

A weaker Dollar could tip the balance badly in countries that rely on exports for things like food products, such as the UAE and Saudi, both of whom maintain a peg with the US currency.

It would not be welcome to have VAT applied to already expensive imports getting pricier.