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UAE retailers brace for rush to beat VAT

DUBAI // Retailers are bracing for a rush on big-ticket items including cars, electronics and jewellery before the value-added tax is brought in next year.

Shoppers are expected to make major purchases earlier to beat the 5 per cent goods and services tax that will be introduced across the GCC next January.

At a car show room on Sheikh Zayed Road in Dubai, Abu Razak, 44, a Nigerian businessman, was looking to buy early.

“The cars I’m looking at are over Dh300,000 so I definitely don’t want to spend an additional Dh15,000 in taxes,” he said.

“I’m looking at Porsches, Range Rovers and BMWs, but if the tax is coming next year then I will definitely buy this year.”

David Stevens, of auditing company EY, said the industry was expecting a rush as shoppers “bring forward their discretionary expenditure to beat the VAT”.

Justin Whitehouse, of Deloitte Middle East, said: “VAT rates tend to have more of an effect on consumption when introduced or where there is a change in rate. The long-term effect tends to be lower.

“What that means is probably an acceleration of purchases as we get closer to implementation with a corresponding reduction afterwards, but hopefully not a sustained drop in consumer spending.

“It will be one of the lowest VAT rates in the world.”

Hema Vaswani, a sales executive who was looking at cars with her husband, said the tax could lead to more competition and lower prices before the VAT was brought in.

“I think there will be more deals and more competition between car companies,” Ms Vaswani said.

“Definitely we will wait for some good deals but we will buy this year before the tax comes in. Who wants to pay more for anything?”

Small businesses will also be thinking about the cost of buying goods and equipment.

“If somebody has to make a heavy investment in capital expenditure like machinery and equipment they may think to do it before VAT is introduced,” said Marie-Claire Accordino of The Accounts Dept, which provides bookkeeping services for small and medium businesses.

“Five per cent is quite small but on a large purchase it will add up, so it would be wise to get it earlier rather than later.”

Ashish Panjabi, chief operating officer at Jacky’s Retail, said retailers are planning for this year.

“I anticipate a lot of big-ticket purchases to happen in the fourth quarter of this year, just because if you are thinking of buying a car and it’s going to cost you D100,000, you would rather save that Dh5,000,” he said.

“A lot of investment decisions will happen earlier and we should see that benefit come through in the last quarter. Immediately after the implementation you may see a lull.”

But Mr Panjabi did predict a long-term change in spending.

“You pay VAT or sales tax in most countries when you travel. If you are coming from the UK or US, this is fairly common,” he said.

“The same thing happened with Salik. Initially people would drive around the tolls but after a point, you think if the inconvenience is worth your time and effort and you take it as a cost of living.”

The tax could boost the second-hand market, Mr Panjabi said.

“It will make retailers across all sectors think a little more creatively. A lot of people don’t think of selling or recycling their old devices here,” he said.

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