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Abu Dhabi, UAESaturday 23 June 2018

Parents brace for an increase in the cost of school uniforms

While tuition is exempt from VAT, stationery and electronic devices used by pupils will be taxed

The school uniforms these tailors make in Al Quoz will cost parents a bit more once VAT is rolled-out on January 1.  Antonie Robertson / The National
The school uniforms these tailors make in Al Quoz will cost parents a bit more once VAT is rolled-out on January 1. Antonie Robertson / The National

With just days to go before value added tax (VAT) is enforced across the country, experts say parents have been spared an increase in tuition and transportation but will pay higher prices for school uniforms.

“It is not an unfair piece of legislation from an education point of view,” said David Daly, a chartered accountant in the UAE and the UK and partner at Argent Gulf Consulting.

According to Article 45 of Federal Decree-Law No. (8) of 2017 approved by President Sheikh Khalifa this summer, “the supply of educational services and related goods and services” for nurseries, preschools, primary and secondary schools, and post-secondary schools owned or funded by the government will be subject to a zero tax rate, which means they will effectively be VAT-free to the end consumer such as parents and legal guardians.

For a school to qualify for the zero-rate, it must be a government-recognised education institution that delivers an approved curriculum, said Shiraz Khan, senior tax advisor with the Al Tamimi & Company law firm.

“Previously there was some concern because they weren’t sure to what extent education would be zero-rated, but I think since the regulation had been issued they confirmed that it is quite a broad zero-rated treatment,” said Mr Khan. “It covers almost all education, except private higher education.”

However, school uniforms, stationery, school cafeteria food and vending machine products, electronic equipment and extracurricular field trips not directly related to the curriculum will be taxed at 5 per cent, said Mr Khan.

“The uniforms would be subject to the VAT. Electronic devices used in the course of education ... would also be subject to VAT,” he said. “Textbooks if they are related to the curriculum – they need to be related – are zero-rated. If they are not related to the curriculum, then they would be subject to VAT.”

A set of school uniforms cost an average of about Dh750 to about Dh1,200 annually per student, depending on the type of school, making this one of the biggest taxable education-related purchases for parents.

Sholeh Mahdabi, owner of one of the oldest school uniform shops in Dubai, Stitches, said her company is doing all it can to help mitigate costs, but come January she will have no choice but add VAT to her merchandise.

“What can we do? We have to add it to the price. Everything that we are going to buy, it is going to be more expensive now, from materials to Dubai Electricity and Water Authority bills,” said Ms Mahdabi.

The likely rise in the cost-of-living in the UAE was "not really appealing to anybody" and had prompted some long-term residents to return to their home countries.

“So many of my long term friends have left,” Ms Mahdabi said.

The supply of “local passenger transport,” which tax experts have interpreted to include school bus transportation, has been classified as exempt from VAT in Article 46 of the law.

“The school transportation is usually provided by a third-party provider, it is going to be treated as an exempt supply so there should not be any increase in costs to the parents,” said Gurdeep Randhay, head of tax and VAT at Grant Thornton UAE.

With monthly school bus transportation costing parents an average of about Dh500 a month or about Dh5,000 annually, this is a generous exemption, said Rajendran Padmanabhan, head of operations for Global International School.

“This is a kind gesture from the government side,” said Mr Padmanabhan. “For the parents, the tuition or the education of the children are not being badly affected. For parents who have two, three or four children studying, it will definitely make an impact for them. It is a kind gesture, I really appreciate the government being so considerate and thoughtful in all these minute details.”

VAT is expected to increase consumer prices by about 1.4 per cent, the Federal National Council heard this week. But Mr Randhay said: “There is VAT around the world and five per cent is very low, it is a negligible amount. The government has done a lot to help the public by not applying VAT to medication, on public transport. So, OK, you will have a hit on food, but that’s not any different from most countries. All in all, people will still come here because of lifestyle, security, safety, comfort.”