It has been a year since UAE and the Saudi Arabia became the first Gulf States to implement the VAT. Interestingly, it will take a couple of years to fully assess the after-effects of the implementation of VAT. However, as per initial data, this new tax regime has been largely successful in diversifying the government revenue without giving rise to inflation. As VAT has to be paid by the end-users, the cost of items and goods are likely to increase. So, let’s explore the ways in which VAT has affected the Gulf.

Impact on the General Population in UAE

The primary question that is being asked by a plethora of GCC residents is whether the tax applied would give rise to inflation? Well, to be precise, the answer is yes. VAT is a form of tax which has to be paid by the final customers. So, the prices of the goods are likely to increase. Thus, with the advent of VAT in the Gulf, the purchasing power will considerably decrease. However, the applied tax rate is only 5%. It is much lower than what is applied in other parts of the world. Therefore, the impact is not expected to be severe.

Its Impact on the Job Market in UAE

Derived from the VAT law, the new company requirements will create additional demand for a specific skill set. Thus, it is expected from organizations to hire VAT experts to take care of the process of VAT filing. On a positive note, for VAT experts, the Gulf is now a lucrative job market. But it will take for each Gulf nation to have experts in this area post implementation.

Impact on Business in UAE

In case your organization’s annual revenue is higher than Dh375, 000, you are required to register for VAT. Note that VAT’s structure of deployment is different from sales tax. It is because each supply chain has to collect, apply and report tax. This is the reason that organizations are making changes in their operations and technology to ensure that they fully comply with the requirements set by the government. As a business entity, you need to report VAT in a proper manner. Failure to do so will result in penalties incurred by the business.

The above-discussed points are the short-term implications of what VAT can have on the economy. Only after its official implementation, the full-scale effects would be known.

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