For retailers, VAT is an opportunity

As the GCC edges closer to a value added tax, importers have to rethink their models

Most people have noticed that the cost of retail goods, from mobile phones to luxury items, tend to be higher here than in other places around the world. The price of a pair trainers or trousers is often well above what they would cost in, say, the United Kingdom or the United States. Even when these items are discounted in-store, which they are on a regular basis, prices tend to hover above the global retail average.

While this country does have a smallish retail marketplace and goods are not subject to tax, the cost difference reflects the large margins that many importers continue to enjoy. With a GCC-wide value added tax set to take effect in January, retailers are going to have to re-evaluate their business models and adjust their margins if they want to be competitive.

As The National reported yesterday, agreements for a GCC-wide value added tax have come into force after the UAE became the second country, after Saudi Arabia, to endorse the accords. There are still many questions about implementation, but a 5 per cent VAT will be levied, along with already-agreed-upon excise taxes, which will be applied to tobacco and energy drinks.

The introduction of VAT, coupled with the rise of online shopping offering lower prices on popular goods, means that retailers will need to be more savvy in the future.

In one way, this is exactly the point. After all, the International Monetary Fund recommended that the GCC adopt VAT partially to force regional economies to create new revenue streams and diversify away from a reliance on oil revenues. There is no doubt that VAT will certainly help governments in the region, as it will bring a projected first-year cash bounty of Dh12 billion in the UAE alone.

The retail sector must stay competitive by providing better products and offers instead of resting on large profit margins that are not realistic in this economic climate. There is no reason that our retail sector can’t compete on price and availability with other mature retail sectors around the world, but it is up to shops and malls to rise to that challenge.