UAE is no more tax free heaven

UAE is no more a tax free heaven for workers and shoppers as the government imposed five percent Value Added Tax. But it marks a major change for shopping crazy country, where the mall is king. Dubai has long held an annual shopping festival to draw bargain hunters from around the world to its glitzy retail palaces. Millions of people rush to Dubai for shopping every year.

  The value-added tax, or VAT, will apply to a range of items like food, clothes, electronics and gasoline, as well as phone, water and electricity bills, and hotel reservations. Higher education will also be taxed in the UAE. Extra costs parents pay to schools for uniforms, books, school bus fees and lunch will also be taxed, as will real estate brokerage costs for renters and buyers.

The cost of living in the UAE is expected to rise about 2.5 percent because of the VAT according to the local media reports. Meanwhile, salaries will remain the same. As the government adjusts to lower oil prices, the UAE is expected to raise around 12 billion dirhams ($3.3 billion) from the tax.

There will be some exemptions for big-ticket costs like rent, real estate sales, certain medications, airline tickets and school tuition.

The International Monetary Fund has recommended oil-exporting countries in the Gulf introduce taxes as one way to raise non-oil revenue. The IMF also recommends Gulf countries introduce or expand taxes on business profits. In line with IMF recommendations, Saudi Arabia and the UAE this summer imposed a 100 percent tax on tobacco products and energy drinks, and a 50 percent tax on soft drinks.

Even so, many residents in the Gulf say the cost of living is already high. Rent can easily eat up a third of income in places like Dubai. Additionally, millions of foreigners across the Gulf send a significant portion of their salaries to relatives back home, leaving them with maybe a third or less of their salary to live off of each month.

N&A news report