Shopping boom in Dubai as consumers cash in ahead of VAT

As the clock chimes 12, life will become a little more expensive for the millions living in the UAE as shoppers feel the force of an extra 5 per cent tax added to many goods and services.

Retailers enjoyed a surge in business on Sunday as consumers piled in to malls across the country to snap up extra discounts and bargains ahead of planned price rises taking effect from January 1 due to the introduction of value added tax (VAT).

Filipina May Ocreto, who lives in Barsha and works in telecoms, is moving to Australia with her husband later this year, partly due to the rising cost of living in the UAE.

“I came into Carrefour for my weekly shop and wasn’t planning on spending extra on sale items, but there are plenty of deals around,” she said.

“It is a lot busier than I expected, because of the VAT coming in on Monday. I’m not sure what the long term impact will be, or how it will affect people’s spending power.

“It’s a government decision so we don’t have any choice but to pay whatever the new prices are. I’m sure it won’t be a problem as long as the extra money is spent in the right areas,” she said.

Saudi Arabia and the UAE are the first GCC countries to implement new taxes, as the region looks for alternatives to oil to generate an income.

Many shoppers were looking to take advantage by seizing an opportunity to buy ahead of the price rises, whilst retailers were also putting on extra sale items to cash in on the extra footfall in stores.

Ayen Lim, a team assistant from the Philippines, had only called into the Mall of the Emirates for some rice, but ended up spending a lot more because of the special offers available.

“I’m looking for a Kenwood mixer, and I know it will be cheaper if I buy it today. I’m only saving about Dh50, but it adds up,” she said.

“We are used to paying VAT in the Philippines of about 12 per cent so this extra 5 per cent is still better than that. I think the extra VAT on DEWA and housing fees will make the biggest difference for most people, and that is the thing most of my friends are worried about. It pushes the overall cost of living up, but me and my husband are happy here and we won’t be moving away anytime soon,” she added.

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Whilst some businesses were seemingly unprepared for the VAT implementation, as the UAE's Federal Tax Authority (FTA) said a number of businesses were yet to register, many retailers were hoping to cash in on the extra shoppers ahead of the January 1 deadline.

Ranjit, who works in sales of electrical goods at Carrefour, said most shoppers were hunting for bargains.

“We were expecting to have more people in, but not as many as this,” he said.

“They clearly know they can save money by shopping today rather than on January 1, so many are taking advantage of the cheaper prices.

“We’ve sold a lot of televisions, and it has been easier for us to close the deals today as people know if they leave it until tomorrow it could cost them a few hundred dirhams on the most expensive items we’re selling,” he said.

According to global accountants KPMG, more than 130 countries imposed an indirect tax, such as VAT, with North America charging the lowest average indirect tax. Europe collected the most tax, on average 20.1 per cent, according to KPMG analysts.

Adam, a British dad of two living in Dubai, said the extra cost of living could make expats think twice about living and working in the UAE.

“We have a family budget, and I’m sensible with money so we can afford to stay here,” he said.

“The 5 per cent is not a big deal to me, but it could be a problem for small businesses and that will eventually have a trickle down affect to consumers.

“Dubai has always been tax free, and that has been one of the attractions for expats coming here to work. Now the dreaded tax is here, that could change things.

“A few people are throwing their toys out of the pram, saying they’re finished here and now want to move back home – but I’m not panicking just yet, although I do have a few concerns.

“I’ve certainly not had a feeling to go out on a wild spending spree before the VAT comes in on January 1.”