Plan your purchases

AS THE UAE GETS READY TO IMPLEMENT VAT FROM JANUARY 1 NEXT YEAR, EXPERTS LOOK AT ITS IMPACT ON RESIDENTS

Weekly, sometimes even daily, groceries can easily total up to a few hundred dirhams in the UAE, especially if it’s for a large family. Food items, toiletries, household items, credit recharge cards and beauty products — all of these necessary products require lots of space in a family’s budget plan.

How will an average family’s monthly budget for everyday products be impacted once the 5 per cent VAT (Value Added Tax) would be implemented starting January 1, 2018? Basic items such as bread, milk, eggs and even mineral water are not exempted from the tax.

Khaleej Times spoke to two VAT experts who highlighted some main everyday items that will be taxed, how it will affect a family’s budget and how they can reduce the impact.

Sarah Ferguson, founder of Sarah Ferguson Tax Consultancy, said low-income households can be hit hard from the tax.

“It is common for many countries across the world to exempt some basic food items and groceries from VAT. Luxury items such as jewellery and cars are usually subject to a VAT. Grocery items will be charged at 5 per cent VAT in the UAE. This will have a great impact on the low-paid households, for example taxi drivers, construction workers, restaurant staff, beauticians and cleaning staff,” Ferguson said.

She recommended families and individuals to do a bulk shopping of nonperishable items before December 31 before the VAT increase starts, to lower the impact.

She pointed out that children’s clothes will also be charged a 5 per cent VAT. “This will have a greater impact on larger families, including higher paid expats. Many low-paid employees have come to work in the UAE without their families, therefore the impact of this will be low on them. Expats can pack clothes for their children when they are coming to the UAE and bring larger children’s clothes to replace them when they have their annual holiday each year.”

One VAT consultant, Mohammad Aaqil Sharif, is encouraging to ensure that they are keeping track of their everyday spending and have a proper budget in place.

“People may become a bit selective in their day to day grocery at the start but will be habitual of VAT in just a couple of months. Everyone is in fear of paying 5 per cent VAT. However, it’s a slim increase and may not hit people that much as they are getting afraid of it. Making a budget for your day to day expense is highly recommended. Do not buy promotional stock which is not your real necessity. In short, spend on what you really need,” he said.

Ferguson also highlighted that petrol will also be charged 5 per cent VAT, as well as cars.

“Most car dealers increased their prices about a year ago when VAT was first being announced. Consumers may be pleasantly surprised as car dealers may drop their prices by 5 per cent in the New Year and then add the 5 per cent VAT, which will in effect appear that there is no VAT impact,” she said.

“Petrol from the pump will be charged at 5 per cent. This is in line with other countries around the world. The UAE benefit from lower fuel prices than many other countries and therefore the effect may not be so great for western expats.

“There is no need for expats to fly back to their home country for medical and dental services. And there is no rush to buy a car before 2018.”

After the VAT, I don’t think I will be saving money from my salary since salaries will be fixed and there will be no salary pay raise with the same percentage of the 5 per cent tax in order to compensate the amount of extra money we have to spend on goods and services. Mariam Al Sayed, Egyptian public relations officer

I’m worried about education expenses for my siblings and shopping since my field requires updating my wardrobe. Also I won’t be able to get a higher level car and this will affect the my trips to Dubai every day. After the VAT, I don’t think I will be able to save.” Haneen Mazen, Palestinian interior designer

We have accepted changes over the years. Introducing VAT is a valid move and the percentage isn’t that scary. It is a change but not as bad as we look at it when it comes to daily life, unless you’re opting to buy a house that’s when tax can add up to Dh100,000 extra on your bill.” Ahmed Al Yafei, Emirati producer

I see VAT as a tool to alter our behaviours towards making better financial decisions. It will force us to budget on a daily basis. For example, on days I am not working, I will opt for public transport to save up on petrol, and I will definitely cut down on eating out every day.” Abdulrahman Hamad, Sudanese banker