In the first quarter of 2017, talks about VAT being introduced in the UAE, and other parts of the GCC caused quite a stir among the residents- expats and locals alike- and for good reason. The GCC has been tax free for a very long time, making it one of the most competitive regions in the world to do business. Personal Income tax is also inexistent in this part of the world making it one of the most attractive places for expat workers since they get to have a higher take-home pay at the end of each month.
In the UAE, where the cost of living has been relatively high for quite some time, news of the 5% Value Added Tax sent a lot of expats into panic mode, especially those in the lower income bracket. Aside from VAT, the UAE also introduced excise taxes for sugary drinks and tobacco products, effectively resulting to a price increase of up to 100%. Add this on top of the already high cost of living in the UAE, and you can’t really blame them to have negative feelings about the additional 5% that they’ll have to pay the next time they go out to buy something.
For a lot of Filipinos like me who used to work for so many years in the Philippines where the taxes are high, and VAT is at 12%, the introduction of the 5% VAT was not something I immediately embraced or welcomed. Just like any other Overseas Filipino here, I too enjoyed and loved the fact that I don’t have to pay taxes, and every single Dirham I earned went to my own bank account. It was mine, and mine alone and not something that went to the pockets of some corrupt and greedy politician back home; so the thought of having lesser disposable income due to higher prices brought about by the 5% VAT really got me thinking of how I’ll be able to manage.
While the VAT is indeed quite a burden, one must also look at it from another perspective. Here in the UAE, if you look around you, there are many things we enjoy for FREE! Yes, you read that right. Free. Most of the public parks here in the UAE do not require any entrance fees, and even if they do it’s only minimal. There are also beautiful public places like Al Seef and La Mer where families can spend time during the weekend, free of charge (not including meals of course). If you’ve been to La Mer recently like we have, you’ll find that it’s a much nicer place now, and it feels a lot safer than when it was just an open beach.
Public Transportation is relatively inexpensive, very efficient, and you have absolutely no reason to be afraid of the Police Officers here, unlike back home. The UAE government has been providing excellent services to all residents, and for so many years they have managed to do that without requiring people to pay income taxes. The UAE is still a very young country compared to most, but the pace of development and advancement in this country can easily put most developed nations to shame. For so many years, Gulf Countries have relied on oil revenues, but due to the instability of oil prices they all had to develop and find other means to generate revenue in order for them to continue funding public services and infrastructure projects which will in turn make all our lives here a lot easier. This country and its leaders have done so much for the people living and working in it over the years, WITHOUT collecting income tax. This is why for me, to be able to help this country and its leaders to continue to make this country even greater in the coming years, the 5% VAT is a price that I am willing to pay if it means that I get to continue to work here and provide a better life and future for my family.
Now the BIG question here is, how can VAT be seen as a good thing? Well, for one thing; since the prices of goods and services will now have an additional 5%, this will make all of us think twice before buying anything. Let’s face it, even for those who are earning less than AED 3000 a month they also take some purchases for granted because some items here are fairly cheap. Take for example a few pieces of tomatoes in your favorite store. Sometimes we would buy more than we need and usually the excess ends up being thrown in the bin or not used at all, but because of the VAT, all of us will now be more mindful with how we spend our money. Those of us who never created a monthly budget for expenses will now have to learn how to manage expenses properly, and avoid any unnecessary spending.
Second good thing about VAT is that a lot of us who never thought of creating additional income streams will now be forced to think of ways to make more money. Did you know that a lot of successful entrepreneurs were by-products of their circumstances? If your salary is not enough for you right now, the 5% VAT might just awaken the entrepreneur in you, and you just might become the next Henry Sy or John Gokongwei.
Lastly, having to pay more for certain goods and services will now make all of us think wisely when it comes to how we manage our salaries. People usually never change bad habits unless an external force compels them to do so. Perhaps with the 5% VAT, a lot of us will now be more prudent with our spending habits.
If you’re interested to know how you can manage your finances better, and create additional income streams, send us a message. We’ll be more than happy to have a chat with you.