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Abu Dhabi, UAEMonday 18 June 2018

With just days to go until VAT comes in, many businesses are still unprepared

Harsh penalties are essential to stop firms exploiting new laws to profiteer

The cost of your grocery shop will go up after January 1 / Asmaa Al Hameli / The National
The cost of your grocery shop will go up after January 1 / Asmaa Al Hameli / The National

There are just a few days to go before the fiscal landscape of the UAE changes forever. When value-added tax, or VAT, comes in at 7am on Monday, life here will be altered dramatically. The average consumer might not notice a few extra dirhams spent on their shopping basket, or the mark-up on their televisions and electronic gadgets, but what they represent is a seismic shift away from an oil-dependent revenue and into a more diversified economy. Businesses have had three months to prepare for a 5 per cent VAT rate and as our story in The National yesterday showed, many are still woefully unprepared. Eleven firms were fined for illegally charging tax before the introduction of VAT on January 1 and are now facing hefty fines of up to Dh15,000 each.

Public reaction to the new financial arrangements have veered between a mixture of apprehension, confusion and fear, to a recognition that it is a necessary and vital step for a mature economy. VAT is expected to bring in Dh12 billion in its first year and up to Dh20bn in 2019. While it might mean paying more upfront for non-essential goods, from toiletries to appliances, it is a necessary reform in the current climate of lower oil prices to boost development in the region and generate more funds to improve services.

It is encouraging to see tax inspectors have already been out in force to ensure companies toe the line and do not exploit the new VAT Decree-Law to line their own pockets. VAT is essentially a tax on the customer and it is important it should not be seen as an opportunity for firms to profiteer. Penalties will be severe for those evading tax or making fraudulent claims and could involve jail terms and hefty fines. That will reassure consumers that they are not being taken advantage of.

Many of those apprehensive about the changes fear it will mean a sharp increase in their expenses. However, 5 per cent is one of the lowest VAT rates in the world so only the biggest spenders are likely to feel the pinch. And if it makes us all a little more sensible about budgeting, that can only be a good thing. A survey by the National Bonds’ Savings Index in 2015 showed 84 per cent of UAE residents did not save enough for the future and two-thirds wished they saved more. Taking note of every extra dirham spent might just mean we are all a little better at building up our nest eggs.