Smooth sailing for big corporates
Barring a few hiccups and logistics challenges for small retailers, the UAE smoothly ushered in the tax era on Monday as most — if not all — large and medium companies seem prepared to embrace the new reality.
Since most companies were closed on Monday due to the New Year holiday, it was only the retail sector which was open for the public. Most large and established companies seem well-prepared to deal with the implementation of value-added tax (VAT).
However, groceries and smallscale retailers operating one or two shops faced challenges as they were ill-prepared in terms of logistics. They were charging VAT on their invoices without mentioning their tax registration number (TRN) issued by the Federal Tax Authority (FTA).
Nadeem Khanzadah, head of omnichannel retail at Jumbo Electronics, said the transition was smooth as there were no major glitches and no stopping of invoices on the first day of VAT implementation.
“It was a seamless implementation across online and at brick and mortar stores. I think most of the other players were also ready. The credit goes to the government,” he said.
Awareness campaigns
There were no objections from the public with regard to high prices on products as awareness campaigns were conducted over the last few months about the new tax, Khanzadah added.
He revealed that the general public made the most of discounts in the last week of December, with Jumbo Electronics posting a 40 per cent increase sales in the last week alone. “Mobile phones, laptops, TVs and new gadgets — all witnessed good sales during the week.”
Thanks to mega sales and discounts during the last week of December 2017, there was little activity in the retail sector on Monday as most residents cashed in on the heavy sales and discounts offered by retailers ahead of VAT.
Joy Alukkas, chairman of Joyalukkas Group, said his company and other major players in the gold and jewellery industry witnessed a smooth transition as there were no glitches reported on the first day of VAT.
There were heavy sale reported in the last week of December ahead of VAT across its showrooms in the UAE and Saudi Arabia, he added.
“We were preparing for the last three months. I believe all the gold and jewellery retailers were also prepared as well in advance,” Alukkas said, adding that there will be a decline in sales in the next few months but then it should pick up again once people begin to adjust to the new reality.
Sales will pick up
“This is a normal trend in any country when a new tax is introduced. Initially, people tend to shy away from buying for a couple of months. As was the case in Malaysia when it introduced VAT, sales fell in the first two to three months. But later they picked up. In Dubai, tourists are still buying gold and jewellery,” Joy Alukkas told Khaleej Times in an interview on Monday.
Retailers in the food and beverage sector have also successfully implemented the system and started charging VAT on the consumer as the sector falls under five per cent VAT taxation.
According to official figures, nearly 350,000 companies from the UAE whose annual turnover exceeds Dh375,000 are expected to register for VAT.
However, some of the major UAE players such as Landmark Group and Pure Gold have announced that they would not pass on VAT to consumers and instead absorb it.
“We are trying to absorb as much as we can through internal efficiencies. We are a value retailer, so we want to be competitive. It’s a great opportunity to become more efficient,” Rajesh Garg, Group CFO, Landmark Group, said earlier. Rajan Wadhera, a tourist in Dubai, said he shopped at an outlet in Deira City Centre and was heartening to see some international brands not passing on VAT to consumers and absorbing it instead.
“I think they are absorbing VAT due to competition. Some very high-end brands may charge VAT as it may not matter at that level because they are not prudent brands but more of prestige brands,” Wadhera said.
Most grocery owners said the public was aware about VAT so people were neither concerned nor questioned the price hike.
Shamsudeen A., a grocery owner in Sharjah, said all the goods supplied on Monday have five per cent VAT on it while the old stock is being sold at preVAT rates.
“We have done the registration but are waiting for the TRN. No customer asks us about the price hike due to VAT because they know it was coming.”
M. Hamza, another grocery owner in Sharjah, said he is not charging VAT since the outlet does not have a system in place but the big retailers are — even on the older stock.
A. Nand, a Dubai resident, said he doesn’t feel any major impact from VAT as five per cent is very small.