UAE- Curb your spending, but how far?| MENAFN.COM

Friday, 03 February 2023 08:37 GMT

UAE- Curb your spending, but how far?

(MENAFN- Khaleej Times) As the UAE welcomes the new year, residents across the country are preparing themselves for value added tax (VAT) that will see them take a closer look at their finances, and curb any unnecessary spending.

While finance experts agree that at five per cent, the introduced VAT is among the lowest in the world, and that the tax won't create much of a financial strain on families, many residents will be extremely cautious about what they purchase especially in the first two months of the year.

"A few expenses affecting the masses like house rents, school fees, public transport, and basic healthcare will have no tax impact and that is a big relief for many," says Dilip Jain, principal for VAT at Nimai Management Consultants.

However, it is the segments that residents rely on in their daily lives that fall under the tax, which have many worried. While many families have said that they will be more careful about spending on frivolities such as new electronics, apparel, and luxury items such as jewellery, in order to save money; they realise that they will still be forced to spend more on groceries, bills, and petrol.

"A common man spends one-third of his total spending on groceries, entertainment, apparel and utility bills, and having a municipal fee of five per cent of residential rent, which are all subject to the standard rate," said Anurag Chaturvedi, senior director at Crowe Horwath.

"This will impact their savings. A yearly average spent on groceries, utilities and entertainment for a family of two is Dh30,000, which will result in additional cost of Dh1,500 per year."

Jain explained that a person who sets aside Dh1,000 for monthly groceries for a house of four people, will have to increase their monthly grocery bill by Dh50, as groceries are fully taxable, unless some further clarification is provided on exempt basic food items.

"Annually it comes to Dh600," he said. "At the time of check out, the shop keeper will issue a simplified tax invoice where the total consideration and the tax amount charged can be shown on the whole bill."

"Since retailers are allowed to show their prices inclusive of VAT, and since the UAE only has a single rate of tax at the moment, it is therefore not required to show the VAT against each line item, and the VAT amount can be displayed at the total level," added Chaturvedi.

Another area that residents have to get ready to pay more on involves their monthly electricity and water bills.

"Electricity and water bills be increased by five per cent, which means on a normal electricity bill of Dh1,200, consumers will pay Dh60 additionally. In some emirates, electricity and water bills include an element of municipal fee ranging between three to five per cent, which may be subject to exemption should it be classified as a service of sovereign nature, but this is yet to be clarified by the cabinet decision," Chaturvedi said. In addition, if a family owns a car, then they will also have to be ready to pay more for both petrol and other maintenance services. For a car owner, who spends Dh600 on petrol per month, there will be an added charge of Dh30 as per the new VAT.

"Salik is exempt from VAT," Chaturvedi revealed. "Car owners will also have to pay additional VAT on their repair and maintenance, and motor insurance. An average spend on annual repairs and maintenance of the car falls in the range of Dh3,000 to Dh5,000 for lower to mid-range cars; this means an additional cost of Dh150-Dh300 on maintenance per year."

In addition to groceries, electricity and water bills, and car expenses, Naveen Sharma, chairman of the Institute of Chartered Accountants of India (ICAI) - Dubai Chapter, says that there are other key areas where VAT will have an impact. These include monthly spends on telephone and Internet bills, and entertainment and leisure activities.

"Phone bills will be taxable under the VAT," he said. "Even if the person is using a data plan or buying the recharge cards from the supermarket, VAT will be applicable in both the scenarios."

Telecom services, which were purchased in 2017 and are spilling over into 2018, will be subject to VAT for five per cent. Recharge cards will be sold inclusive of the VAT, which means that the price will not be changed; however, the vouchers benefits may be reduced to adjust the impact of VAT in the form of an increase in call charges or reduction in benefits. In addition, any calls made in the UAE will attract five per cent VAT. Sharma also noted that families that like to spend their weekends going out and watching a movie and then going for dinner to a nice restaurant will have to have more cash in their wallets for the outing.

"VAT will be applicable on cinema tickets and meals, so for end consumers, the cost for cinema tickets and meals are expected to increase by five per cent," he said. A family who spends Dh200 at the cinema will have to pay an extra Dh10 as VAT on cinema tickets, Sharma estimated. If they go to a restaurant and spends Dh300 on a meal, then they will have to pay an extra Dh15 as VAT.


Rohma Sadaqat I am a reporter and sub-editor on the Business desk at Khaleej Times. I mainly cover and write articles on the UAE's retail, hospitality, travel, and tourism sectors.Originally from Lahore, I have been living in the UAE for more than 20 years. I graduated with a BA in Mass Communication, with a concentration in Journalism, and a double minor in History and International Studies from the American University of Sharjah.If you see me out and about on assignment in Dubai, feel free to stop me, say hello, and we can chat about the latest kitten videos on YouTube.


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