Here’s how VAT will affect your family’s budget in UAE

Here’s how VAT will affect your family’s budget in UAE

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.

Although, how will an average UAE 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.

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 increase. Grocery items – basic food items such as bread, milk and water 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 recommends families and individuals to do a bulk shop of non-perishable 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 in the UAE 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 very low. 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, Muhammad 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 a just 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 introduced. Consumers may be pleasantly surprised as car dealers may drop their prices by 5 per cent in the New Year and then add on 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.”

“To summarise, families should purchase non-perishable items before December 31 where possible. Children’s clothes can be purchased from their home country and can be passed down to siblings and younger family members. 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.”