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“VAT” has Minor Impact on Consumers

​Image: DSC logo

​Image: DSC logo

Dubai Statistics Center "DSC" emphasized that VAT impact on consumers' living standard and overall level of prices will be at the minimal considering that key goods and services that account for the lion's share of families' spending are VAT exempted. These goods and services include housing rents, basic health and education services.

In accordance to a survey done by Al Ittihad Newspaper on "the adopted relative weights to calculate inflation rates in Dubai", the relative weights of the major spending groups which include VAT-exempt goods and services accounted for nearly 60% of the total households' spending on goods and services. Housing, water, electricity, gas and fuel accounts for 43.62% of the standard weight of the main spending groups, 0.85% for health, 10.62% for transportation, approximately 8.48% for education, food and drink groups 13.09%, tobacco 0.35%, 2.05 for clothing, 5.22% for communications, 2.33% for entertainment and culture, 4% for restaurants and hotels, and 5.63% for the remaining goods and services.

Mr. Arif Obaid Al Muhairi, DSC Executive Director, in an interview with Ittihad Newspaper, stated: "Housing sector enjoys a relative importance within the consumer's overall spending on services and goods in Dubai in general and in line with the relative weights adopted to calculate annual and quarterly inflation rates in Dubai." He pointed out that exempting major spending groups results in making the impact of implementing VAT much lower than the tax rate itself, which greatly reduces the impact on inflation rates and general price levels, and definitely the general standard of living. "Goods and services subject to VAT, which will be driven by price rises, are part of the basket of goods and services of total consumer spending in Dubai," Muhairi said. He further explained: "Increase in prices will take place as soon as Vat is implemented in the initial stages. However, this influence on price levels will vanish when price comparison is conducted for two periods of time that enjoy similar tax conditions to examine the impact of supply and demand on prices of goods and services and the influence of competitiveness on provision of goods and services. It is expected that results will be in the side of consumer as producers or traders may tend to waive part of their profit margin to leverage their sales and this will have a positive impact on the consumer."

Al Muhairi signed off by saying: "VAT is a type of indirect tax that is collected through an intermediary (retail stores, for example). In their turn, these intermediaries add this tax to be paid by consumers by rising prices of goods and services subject to this tax. VAT is adopted by numerous countries with different rates and it reaches 15% or more in certain Arab countries."

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