VAT in UAE: What will be taxed and exempted

Nov,2017

School fees will be spared, but residents should keep an eye on their budgets as water, power, food and jewellery are expected to come under Value Added Tax (VAT) from next year. Experts, however, believe that it won’t break the bank for most people.

“Most food staples have a price elasticity of demand ranging from 0.20 to 0.80 in demand. This means that staple food items are generally price inelastic. So when you regularly purchase an item for Dh20 and now see it priced at Dh21, it is unlikely that consumers will think twice about buying it especially considering that the bulk of food items in the UAE are imported and prices fluctuate regularly,” says Dr Sanjay Modak, Visiting Professor of Economics at the Rochester Institute of Technology.

A VAT rate of 5% for food is still low compared to other countries. In Europe, rates range from 15% in Luxembourg to 25% in Croatia. Japan has a consumption tax of 5% and Singapore has a GST of 7%. Canada has 5%. Hong Kong still remains tax free for all consumption.

Meanwhile, the World Gold Council released a report which says jewellery sales in the country dropped 10 per cent during the third quarter to seven tons. But sales generally pick up in the last quarter as tourist arrivals increase, so it’s early to ring the alarm bells.

Parents will need to shell out more for school uniforms for their kids but school fees will be exempt from the tax. Higher education institutes that are more than 50 per cent funded by the government, will not be charged VAT; the rest will come into the fold.

Another major development is that free zone companies purchasing goods and services outside the zone will be subject to VAT. This means potentially high VAT pre-financing for companies in Jebel Ali Free Zone and Dubai Airport Free Zone.

Source credit: Khaleejtimes.com