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On January 1, Value Added Tax (VAT) at the rate of 5 per cent was introduced in the UAE, and this tax is applicable to a majority of products and services available in the country. A regular UAE resident now pays VAT on almost everything, starting from food items and utilities, to shopping and consultancy services. To see how much VAT and the resulting small change issue affects us, we look at Babu.


Babu has been living in the UAE for 15 years and this timeline represents his daily routine. He stays alone in Sharjah while his family lives in his home country of India. Babu has a white-collar job in Dubai and he drives in from Sharjah every day. Babu’s day is typical for many UAE residents and does not include major shopping, or extraordinary expenses.

 

We tally up his routine expenses and find out how much he pays extra on a daily basis in January as compared to December 2017.

VAT: MUCH ADO ABOUT NOTHING

VAT: MUCH ADO ABOUT NOTHING

A DAY IN BABU’S LIFE

Babu starts off his day with coffee and a light breakfast at his local café.

For breakfast Babu pays a total of Dh24.50

On his way out, he fills up 49 litres of petrol and drives to work.

Babu reaches office and parks in the non-commercial parking zone by his workplace.

From his office cafeteria, he has lunch with a 500ml bottle of water.

For lunch Babu pays a total of Dh17

His four-hour parking has run out, so Babu steps out and also gets snacks and smokes from the store next to his office.

For snacks Babu pays a total of Dh4.50

During his coffee break, he picks up a new Salik tag.

During the coffee break, babu spends a total of Dh41.75

Babu drives home on a route that leads him through a toll gate in the morning and evening.

Stopping at the supermarket near his home, Babu stocks up on essentials including milk, water, bread, meat etc.

Babu orders in a meal along with condiments and beverages before turning in for the night.

Before VAT Dh277

What Babu paid today

Dh290.17

This timeline shows that Babu spent an extra Dh13.17 per day in January.

 

This is slightly lesser than 5 per cent of his everyday expenses before VAT. This is because government services such as parking, Salik and metro rides are not taxed under VAT.

Babu Das Augustine, Banking Editor at Gulf News, answers VAT questions and how it will affect your daily life.

 

How to ask Babu

Message us on Facebook or email: readers@gulfnews.com with ‘VAT Question’ as the subjectline.

Contact Us

send us a WhatsApp message on 056 5245977 or tweet to us @GNReaders. You can also direct message us on the Gulf News Facebook page.

Dona Cherian, Hugo A. Sanchez, Jacob Hernandez /©Gulf News

About VAT in the UAE

VAT was introduced in the UAE on January 1, 2018 at 7am on the day.

VAT is not collected by the government, rather it is collected by businesses at every stage of the supply chain on behalf of the government. Meanwhile, businesses can reclaim refunds from the government for VAT paid to suppliers. Thus, VAT will ultimately be borne by the final consumers rather than being a tax on business activity.

VAT is one of the most common types of consumption tax around the world. More than 150 countries have implemented VAT or its equivalent, Goods and Services Tax (GST), including all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia.

 

 

VAT Categories in the UAE

Under the UAE tax laws, VAT-applicable goods and services will be divided into three categories.

VAT at zero rate: Under this zero per cent VAT is charged, VAT credit available. Sales will still need to be recorded in companies’ VAT returns, as with other categories

VAT at standard rate: Under this 5 per cent VAT is charged. Most goods and services will likely fall in this category, including electronics, cars, dining out and entertainment. The 5 per cent VAT rate will be passed on to consumers, with VAT credit available for companies.

VAT exempt category: In this, VAT on inputs is not passed on to consumers, thus no VAT credit is available. Corporates will not be able to recover or reclaim the 5 per cent VAT incurred on exempt items or services. Thus, exempt inputs have the potential to erode business profit margins.

 

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