Abu Dhabi, United Arab Emirates, November 16, 2017:    Purvi Gokani, partner of the Beautiful Henna Centre in the Al Naser Restaurant Building along Airport Road in Abu Dhabi November 16, 2017. Christopher Pike / The National

Reporter: Jessica Hill
Section: Business
Entrepreneur Purvi Gokani is planning a stricter budget for 2018 to offset the effects of VAT. Christopher Pike / The National

UAE residents cut back ahead of VAT introduction



Purvi Gokani, an Indian entrepreneur in Abu Dhabi, has already made a New Year’s resolution to rein in her spending next year.

Her biggest pledge is to spend less on electronics. “We will be buying as many things as possible at home from India,” says Ms Gokani, who runs Beautiful Henna Centre in the capital.

“We don’t go on many holidays, but we do eat out a lot, and that will also definitely have to change. Savings we should not, and probably will not, cut down on – but it’s not as if we save big amounts anyway.”

Ms Gokani’s saving plans are not part of a personal list of financial resolutions, but something many residents are contemplating ahead of the New Year. Because, while nobody really knows what the future holds, one thing UAE residents do know is that from January 1, when value added tax (VAT) is applied in the UAE for the first time at a rate of 5 per cent, the price of food, petrol, cars, clothes, electronics, water and electricity in the UAE will rise, with a small but inevitable knock-on effect on household spending power.

For some cash-strapped expats, the introduction of VAT is incentive enough to consider moving home.

Lisa Martin, a Dubai accountant who helps SMEs get VAT-ready through her company The Counting House, says there is no need for consumers to panic.

“Being alarmed isn’t going to help. VAT is coming, and there’s nothing that an individual can do about that,” she says. “Thinking about how you might change your spending habits to compensate is far more productive.”

In a poll conducted by the Association of Chartered Certified Accountants and Thomson Reuters in July, 88 per cent of organisations surveyed said they had not made any budget provisions for VAT, indicating that initially, VAT will be almost always be passed down by retailers to the consumer, in 5 per cent price rises on their products.

However, Ms Martin believes that this situation may change over time, “if retailers see spending habits changing, and their profits are being affected by a drop off in sales”. “But that adjustment will take time to come,” she says.

While Ms Gokani is planning to spend her own money carefully, she admits she will most likely pass the cost of VAT onto her customers. “It’s a tough one for SMEs like ours,” she says. “With already rising costs of conducting business, such as higher utility bills, business rents, parking fees, visa fees and insurance costs, it will be a strain paying VAT for the products and services that we use on a daily basis. Ultimately, the consumer will be quite burdened.”

Ms Martin says VAT will have a more noticeable impact on those who already have to manage their money closely.

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“VAT only affects spending, not savings, so those families who spend a higher proportion of their income, versus those being able to put money into savings, will see the biggest proportional effect of VAT,” she says.

“If you are already spending most of your income to meet your monthly commitments, then you may need to cut back in other areas.”

For residents already struggling to balance their budgets, she issues a stark warning.

“The UAE is not a place to get into debt, as an inability to meet your financial commitments is a serious issue. Banks can often be inflexible or unable to allow changes to payment schedules, or provide loans at short notice.”

On top of the new tax, UAE residents looking at their spending projections for 2018 should factor in inflation, which the IMF projects will be an average of 2.9 per cent in 2018 and 2.5 per cent in 2019.

And don’t expect your boss to reward you with a salary increase next year to help you balance your budgets. “Companies will themselves be facing the additional cost of making sure they are VAT compliant, and there is always pressure for businesses to improve their bottom line profitability,” says Ms Martin.

But it is not all bad news. The overall cost impact is likely to be only around 1.5 per cent for most families, according to Ms Martin, given that their biggest outgoings – education, residential rent and overseas travel – will be zero rated or exempt.

There are 160 countries in the world that currently implement VAT, but most of these charge far more than the 5 per cent being introduced in the UAE. The average VAT rate in Europe is 20 per cent, which is about 5 percentage points higher than the global average.

Clementina Kongslund, who runs Nordic Fairyland, an online store in Dubai, comes from Romania, where VAT is 19 per cent; her husband is from Denmark, where VAT is charged at 25 per cent. “Salaries are better here in the UAE than back home, otherwise we wouldn’t stay,” she says. “VAT won’t affect my way of shopping.”

While VAT will affect everyone, lower income residents could be more affected by price rises. Faisal Ashraf is a Bangladeshi, who runs a small air conditioning business in Abu Dhabi, Al Shakline AC, which is already running losses. He believes that VAT will be “a disaster” for his employees, who earn an average salary of Dh1,500 a month.

“They roughly save around Dh900 of that, and the VAT will make their savings very low,” he says. “The men won’t be able to send enough money to their families back home.”

But Kelly Al Muhairi, a Welsh teacher married to a UAE national, is more complacent about changes on the horizon. “Life in the UAE is going to get more expensive, but it will still be cheaper than other countries,” says Ms Al Muhairi, who lives in Mohamed bin Zayed City. She has already started a personal drive to become thriftier with her money.

“I try to plan meals and take a packed lunch to work with me, which I will continue to do so when tax comes in,” she says. “I’m giving travelling to the UK for the winter break a miss this year. And since having children, I’ve cut down my nail salon trips, which are going to get more expensive.”

For some expats, the introduction of VAT is prompting them to consider reducing luxury spending, such as dining out in 2018. “Our lifestyle will have to change in a big way,” says South African housewife Ashleigh Roebuck, who lives in Abu Dhabi. “We’re planning on having more friends over in the garden, which is cheaper than brunch, and only one holiday a year home.”

Brunch is also an easy target for Sally Barnes, a Briton living in Abu Dhabi. “We will definitely reduce going out every Friday for brunch as we normally do; maybe we’ll just go out a maximum of twice a month,” she says.

Some residents say businesses appear to have already begun raising their prices, to cushion the VAT blow to customers come January 1.

Ana Claudia, a Russian beauty entrepreneur in Dubai, says she’s noticed price hikes when doing her grocery shopping.  “I’ve seen the prices rising since last month, for a few products by more than 10 per cent,” she says.

Donna Needs, an American corporate trainer in Dubai, says the introduction of VAT might affect the way she shops for groceries in particular. “I rarely look at prices when grocery shopping, but I might start being more frugal with my groceries,” she says.

6 UNDERGROUND

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SPECS

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Transmission: seven-speed automatic

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Name: HyveGeo
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ARM IPO DETAILS

Share price: Undisclosed

Target raise: $8 billion to $10 billion

Projected valuation: $60 billion to $70 billion (Source: Bloomberg)

Lead underwriters: Barclays, Goldman Sachs Group, JPMorgan Chase and Mizuho Financial Group

Top 10 most competitive economies

1. Singapore
2. Switzerland
3. Denmark
4. Ireland
5. Hong Kong
6. Sweden
7. UAE
8. Taiwan
9. Netherlands
10. Norway

12 restaurants opening at the hotel this month

Ariana’s Persian Kitchen
Dinner by Heston Blumenthal
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EMIRATES'S REVISED A350 DEPLOYMENT SCHEDULE

Edinburgh: November 4 (unchanged)

Bahrain: November 15 (from September 15); second daily service from January 1

Kuwait: November 15 (from September 16)

Mumbai: January 1 (from October 27)

Ahmedabad: January 1 (from October 27)

Colombo: January 2 (from January 1)

Muscat: March 1 (from December 1)

Lyon: March 1 (from December 1)

Bologna: March 1 (from December 1)

Source: Emirates

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1997: Amazon goes public at $18 a share, which has grown about 1,000 per cent at present. Its highest closing price was $197.85 on June 27, 2024

1998: Amazon acquires IMDb, its first major acquisition. It also starts selling CDs and DVDs

2000: Amazon Marketplace opens, allowing people to sell items on the website

2002: Amazon forms what would become Amazon Web Services, opening the Amazon.com platform to all developers. The cloud unit would follow in 2006

2003: Amazon turns in an annual profit of $75 million, the first time it ended a year in the black

2005: Amazon Prime is introduced, its first-ever subscription service that offered US customers free two-day shipping for $79 a year

2006: Amazon Unbox is unveiled, the company's video service that would later morph into Amazon Instant Video and, ultimately, Amazon Video

2007: Amazon's first hardware product, the Kindle e-reader, is introduced; the Fire TV and Fire Phone would come in 2014. Grocery service Amazon Fresh is also started

2009: Amazon introduces Amazon Basics, its in-house label for a variety of products

2010: The foundations for Amazon Studios were laid. Its first original streaming content debuted in 2013

2011: The Amazon Appstore for Google's Android is launched. It is still unavailable on Apple's iOS

2014: The Amazon Echo is launched, a speaker that acts as a personal digital assistant powered by Alexa

2017: Amazon acquires Whole Foods for $13.7 billion, its biggest acquisition

2018: Amazon's market cap briefly crosses the $1 trillion mark, making it, at the time, only the third company to achieve that milestone

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  • Avoid assumptions, seek understanding, ask questions
The Roundup : No Way Out

Director: Lee Sang-yong
Stars: Don Lee, Lee Jun-hyuk, Munetaka Aoki
Rating: 3/5


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