6 Ways VAT Will Likely Affect The Retail Sector in Dubai | ExpatWoman.com

6 Ways VAT Will Likely Affect The Retail Sector in Dubai

At the end of the day, as with all VAT systems, the consumer will most likely bear the total cost

Posted on

25 September 2017

Last updated on 28 September 2017
6 Ways VAT Will Likely Affect The Retail Sector in Dubai

The UAE announced earlier this year that they are going to start implementing 5 percent VAT across the UAE as of January 2018. It was decided to implement the VAT in order to find an alternative income stream for the country to pay for things such as public services.

It is expected that during its first year, VAT in the UAE will bring AED 12 billion into the country but now the question remains, how will it affect the retail sector?

Consumer electronics will be affected the most

Even though some people really can’t get through the day without their smartphone by their side, consumer electronics are at the end of the day just ‘nice to have’ products. All electronic devices will thus see a 5 percent VAT increase which retailers will most likely not absorb. These items include televisions, computers and smartphones.

SEE ALSO: VAT in the UAE to be Introduced Next January

Groceries shouldn’t be affected, too much

Your grocery bill shouldn’t be affected too much, depending on how lavish your grocery list is. Approximately 94 key food items will be exempt from VAT leaving some of your grocery bill the same. If you are, however, going to be buying items such as fizzy drinks, ice cream, cheese and other similar items which aren’t vital to survival, you will be paying VAT.

Products with high elasticity of demand will be affected, but consumers might not feel it

High elasticity of demand in short means that the demand of a product is dependent on the price. If prices increase, the demand decreases and vice versa. Retailers will have to absorb the costs of these items, such as appliances, in order to remain competitive and relevant.

Luxury items will be affected, but consumers will most probably not even notice it

Nikola Kosutic, a Research Manager for Euromonitor International Middle East told Gulf News “A couple of hundred dirhams as a result of VAT on top of Dh10,000 handbag is not too bad. Luxury is not so affected by VAT.”

SEE ALSO: How 5% VAT Implementation Will Affect the Car Market in the UAE

If the retailers are nice, they might absorb the VAT on behalf of consumers

Previously being a “no VAT zone” meant that retailers could add huge mark ups to their prices. So much so, that Dubai retailers have some of the highest mark ups in the world.

With the extra mark up on products, some retailers might just absorb the VAT completely on behalf of their customers. This will however only be in certain cases and more specifically applies to white goods.

Companies will be fined if they don’t register for VAT

All companies with a minimum annual income of AED 375,000 need to register for VAT. If they don’t they will be fined by the UAE’s Federal Tax Authority