VAT has costs and benefits for residents
As our three-day series of stories about the introduction of VAT has shown, there is both concern and nonchalance over the new tax. Both are merited.
The concern is real. For businesses, especially medium-sized companies, the 5 per cent charge on goods and services will have a measurable impact as they prepare for its implementation. Larger businesses will more easily absorb the initial costs. Over time, though, it ought to result in prices returning to normal, as businesses find ways to make savings. There will certainly be competition not to pass on the VAT to customers, and we can expect big businesses to be vocal about that decision.
For consumers, the news is mixed. The cost of living is rising, especially in the two largest cities. The introduction of VAT has not come in isolation. There has been the gradual introduction of a municipality fee for expatriates in Abu Dhabi, backdated to February last year. Prices across the board appear to have gone up faster than wages.
Nor has it come into a landscape without additional charges – anyone who has visited a restaurant or hotel will be familiar with the somewhat opaque tourism and hotel fees added at the bottom. (There is some hope that with the introduction of VAT, businesses will be a little bit more transparent about these charges.)
At the same time, and this can be a hard thing to hear, a 5 per cent goods and services tax is manageable. It will not apply to essential products and will not apply to health care. Those seeking to buy big-ticket items such as cars will be able to pay a small amount more; and those spending regularly at restaurant and entertainment venues will be using their disposable income to do so. Overall, then, while it is never pleasant to be asked to pay more, a small increase in VAT will not strain most wallets too much.
Moreover, it is worth considering what the tax will pay for. This newspaper recently noted 10 large Abu Dhabi projects that will be completed soon – among them a Dh5.5bn sewage tunnel, new motorways, hospitals and, of course, the mammoth Dh84.4bn Barakah nuclear power plant.
As those numbers show, these projects are far from cheap, but they will benefit everyone who lives here. A sustainable tax that allows the standard of living to remain high and even improve is worth paying.