The introduction of the value-added tax (VAT) by the GCC from January 1, 2018, will only have a short-term impact on the spending power of locals and expats, according to a new report.
The five percent general consumption tax, BMI Research said, will be the largest measure to impact spending power of GCC citizens.
“Companies typically pass these costs down to consumers, which means we expect to see a five percent increase in prices for the majority of goods and services in 2018. We, therefore, believe this will lead to a short-term negative impact on consumer spending, as households adjust to the new price reality,” the Fitch Ratings subsidiary said.
However, it projected consumer spending levels to remain stable driven by relative wealth of households and low inflation ensuring purchasing power is not eroded significantly.
“Even expats will weather the storm due to exemptions on many basic goods including food and healthcare,” BMI said.
The UAE is expected to exempt more than 100 essential commodities from the tax list.
According to the consultancy, though the common framework was agreed upon in May 2016, there is a possibility that the each domestic VAT law will differ slightly at the country level.
“This means the amount of revenue raised, details on product exemptions and the costs to growth will vary across the GCC. Our Country Risk team expects the UAE will be the most affected by the introduction of VAT given its larger consumer base, as the country will raise 2.1 percent of GDP from the tax, compared to 1.1 percent in Qatar and 2.0 percent in Kuwait,” it added.