x Abu Dhabi, UAEMonday 19 February 2018

A month in, VAT has become part of our day-to-day lingo

Businesses and customers are adjusting to the changes that January 1 heralded

A month after VAT's implementation, the pessimism around it seems to have been ill-founded. Pawan Singh / The National
A month after VAT's implementation, the pessimism around it seems to have been ill-founded. Pawan Singh / The National

It has been a month since VAT came into effect in the UAE. The five per cent consumer tax, levied on goods and services, was the subject of fevered debate in the weeks leading up to its implementation. There was a spike in economic activity in the fourth quarter of 2017 as consumers rushed to make purchases before the arrival of VAT. This prompted some to speculate that there would be a corresponding slump in spending after January 1.

The rollout of a new tax in an economy without a prevalent tax regime was bound to give rise to a modicum of confusion. Some 3,621 complaints were lodged with the Higher Committee of Consumer Protection on the day that VAT went live. The law may be clear, but change always generates opportunities for abuse. In the first two weeks of January, consumer protection teams slapped fines on more than two dozen retailers for VAT-related infractions. Customers of Fitness First have complained that the health-club company has sought to add VAT retrospectively to their membership fees. Although the law seems to favour the consumers, a test case such as this is useful because it helps to clarify any doubts that remain.

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Fitness First in dispute with members over VAT

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Overall, what is striking about post-VAT UAE, is the smoothness with which change has been accomplished. Commerce has not suffered: businesses small and big have by and large integrated VAT into their daily transactions without triggering major disruptions. Some shopkeepers have absorbed small charges to make the transition easier for consumers. Seventy per cent of all VAT revenues will be invested into local government projects, and though human flaws will always remain, the UAE’s residents are playing their part in the government’s vision to transform the country into a thriving post-oil economy.

According to the Ministry of Economy, VAT-related complaints dropped from over 3,000 to under 500 in the first fortnight of January, thanks to the swift response of the government and the example set by the quick penalties dispensed to offenders. A new dawn financial dawn broke out on January 1 and the country has undergone a significant transformation without inflicting unnecessary pain on its citizens.

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