VAT Impact on Retail Sector

According to the latestA.T. Kearney retail study the UAE remains the most attractive market in the region for retailers, with strongdevelopment openingsbeyond Dubai.

As indicated by the 2017 A.T. Kearney Global Retail Development Index, the UAE is positioned fifth this year, even though its retail market is showing the first signs of cooling from over a decade of double digit growth. The country remains very attractive to retailers, as 86 per cent of the population lives in urban centers, and retail sales exceeded $73 billion in 2016. The UAE also remains a low risk destination as other countries in the region battle the effects of low oil prices. The report additionally predicts that the nation's economy ought to become around 3.4% annually through 2022, analysts remain bullish on the UAE's long-term prospects regarding the implementation of VAT in UAE.

The UAE and Saudi Arabia are among the first countries in the Gulf to implement the tax that is expected to provide a new source of revenue for governments to spend on infrastructure and other public services.

According to Euromonitor International, e appliances sector, especially consumer electronics, will be hardest hit by the introduction of value-added tax (VAT), Concerning different fragments of the retail sector the UAE’s first major tax will have varying degrees of impact, says Nikola Kosutic, Research Manager for Euromonitor International Middle East.

The sector which will be least affected is the grocery segment as most of it will be exempted,” Kosutic said,he also added that: “However the hardest hit will be the appliances segment due to the elasticity of demand for such products.”

Pricing strategiesfor example, this will help retailers abstaining from passing the total of the cost increment on to their customers.

As per Deloitte, products such as appliances, which have a high elasticity of demand, are not able to pass as much cost on to their customers if they are to remain competitive. Luxury products have a tendency to be extremely inelastic, as indicated by Kosutic, implying that in spite of the price increases, demand won't change too intensely,” Luxury is not so affected by VAT.”

“Tax has a major psychological impact as lesser rate will have large or greater impact than high rate tax, for example, Zero per cent to one per cent has a much bigger impact than 10 per cent to 20 per cent.”

According to Kosutic, the margins in this region are so great that retailers will have some cushion for the introduction of tax. UAE’s zero tax policy has been that retailers have been able to introduce such huge mark ups that are the reason retailers cherish it here. They couldn't dream of such mark ups at home," he said.

"It will take significantly more than tax to change Dubai's fame as a shopping goal," he concluded.

A representative for Lulu Group International said they are completely arranged to be consistent with the VAT framework. "We might sit tight for more illumination on information maintenance and recording positions. We have the required understanding as the comparable selection in Far East nations and the current GST roll-out in India. We have just begun a trial keep running in our framework for the smooth execution of VAT," the representative said.

When asked whether there would be any impact on business, he said many of the residents in the UAE are from countries which have VAT in place, and as a result he does not see any negative impact on business.

Imran Khalid, CFO of Brands General Trading said that they are redesigning their IT infrastructure to meet the new necessities,he added that "We expect the new duty will profit the UAE economy over the long haul as the cash earned through VAT will be reinvested in the advancement of new tasks, which will thus prompt production of new employments and reinforcing of the economy," UAE is implementing a very low rate VAT so it will not have much impact on the cost of goods.

The UAE is relied upon to issue VAT laws in the second from last quarter of this current year and the online enlistment will start in mid-September.

All organizations that meet the base yearly wage of Dh375,000 as affirmed by their monetary records are required for mandatory enlistment with the VAT framework.

Fines will be demanded against the organizations that neglected to enroll with the framework, the UAE's Federal Tax Authority said recently.