Complex Made Simple

VAT puts a damper on UAE customer spending

The reaction to the introduction of VAT for the first time in the history of the UAE has been mixed. For the most part, things had not changed much in the first few months.

Now, however, 8 months into the year, the repercussions are beginning to appear.

VAT fallout?

In a recent survey of 1,347 UAE residents by comparison site yallacompare, dubbed the Consumer Confidence Tracker for Q2, numbers have revealed that citizens of the GCC nation have begun to feel the sting of VAT. The site has cross-referenced their Q2 results with the info they discovered in their Q1 survey.

Consumers aren’t feeling hot when it comes to VAT-led price inflation.

The survey found that 13.9% of UAE residents are now struggling to make ends meet as a result of price increases related to the introduction of VAT, a 2% increase compared to Q1 2018. At first glance, 2% increase might not seem like much, but given that it has occurred over a period of a mere 3 months, things aren’t looking too great for the UAE customer.

On other hand, 52.2% have said that they are managing to get by, despite having to slow down their spending. In Q1, this same group of people tallied to 58.3%, marking a 6.1% decrease. This could herald a problematic future for consumers in the country.

Finally, 30.9% of respondents stated that they could barely notice any change in prices as a result of the new legislation.

READ: FTA: Eligible goods for VAT based on profit margin

Financial health not deteriorating as much

“The Consumer Confidence Tracker Q2 2018 reveals that 41.2% of UAE residents are less confident about their financial health than they were this time last year,” the survey revealed. “That compares to 42.9% of UAE residents who said the same thing during the first quarter of the year.” Essentially, 1.7% more of those surveyed have shown a bolstering of the UAE consumer’s confidence.

“As was the case in Q1, just over 19% of UAE residents are currently more confident about their financial health than they were 12 months ago.”

READ: No VAT till 2021, but Kuwait’s debt swamp forcing direct business taxation

Expats aren’t going anywhere

“Despite the increased cost of living affecting more people, expat UAE residents reported that they are no more likely to leave the UAE due to their finances than they were in the first quarter of the year,” the survey revealed.

22.8% of expats surveyed are more likely to leave the country (24.4% in Q1), and 41.5% are less likely to leave (42.2% in Q1). It would seem that the 5% VAT is not enough to hinder expat spirits.

It is no secret that GCC countries offer the best salaries in the region. The population boom during the 1980s and 1990s was mostly a result of this, with many citizens from Lebanon, Egypt and other Arab nations leaving their homes behind in search of a better life.

In fact, almost 35% of those surveyed by youcompare reported a salary increase in the past 12 months, from Q2 2017 to Q2 2018. In Q1, 30% saw a pay raise.

Currently, the widespread implications of VAT in the UAE remain relatively subdued. By next year, things could remarkably change. However, a diversified, robust economy such as the UAE’s won’t easily falter.

READ: UAE: Impact of VAT on sales of gold and diamonds to be reduced

Businesses struggle to come to terms with VAT

The implementation of VAT has not come without its own set of problems, which is to be expected when a major legislation such as this is introduced for the first time.

Rob Dalla Costa, director of VAT practice at KPMG, said, “The delayed legislation gave businesses very short time to prepare their IT systems for introduction. Important Cabinet decisions were implemented only after VAT was introduced and backdated to January 1. All those decisions made the transition difficult. There are still glitches with registration and VAT return process.”

He also noted that when it comes to paying back their suppliers, businesses are delaying, using tax invoices as an excuse.

It’ll take time before businesses fully acclimate to these changes.

READ: Say Cheese! Who bet the farm to save the Saudi consumer?