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VAT and what it means to you
April 22, 2017, 5:15 pm

Expectations of a uniform Value Added Tax (VAT) on various goods and services being rolled out from January 2018 across the six-nation Gulf Cooperation Council (GCC) bloc, is giving rise to calls for businesses to bring their systems and process in line with the new law. Here, we look at how VAT will impact expatriates and their monthly budgets, and whether it is time to speak to your boss about a raise.

Though the exact contours of the new VAT law are still being hammered out by policy makers, and there is talk of granting greater flexibility to individual states on how to define the tax base for imposing the law, what is clear is that VAT will have an impact on your everyday purchases.

Basically, VAT is a consumption tax that is levied on products at every point of sale where value has been added. It starts at the point of raw material sale and then goes up the value added chain to finally reach the retail consumer; with each buyer paying a VAT tax and being reimbursed for that amount by the buyer higher up the value chain, until it reaches the ultimate end user.

Governments usually make leeway in their VAT law so that it does not adversely impact poorer sections of society. Many GCC finance ministries have already announced that the VAT law would exempt staple foods and some sectors such as education, health and social services. The UAE Ministry of Finance has said that essential goods and services such as some food products, education sector, and healthcare would be exempt from VAT in the emirates.

However, a number of sundry expenses, including for dining out, buying branded and luxury products and electronics, as well as several other goods and services, could be impacted by the addition of VAT taxes. This could add to a household’s monthly budget and lead to an increased cost of living for families in the GCC.

The VAT is being introduced as a means of helping GCC governments to raise other sources of income and is part of the overarching aim of diversifying economies of the region and weaning it away from its reliance on oil revenues. Moreover, VAT is a form of tax that is easier to implement and is less objectionable to many people than a straight-forward tax on incomes. What is not so evident to many is that VAT, unlike an income tax, can also be hiked up gradually over the years without many people realizing or objecting to it. 

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