The recently introduced Value Added Tax in the United Arabs Emirates aims at helping in raising funds for the development of projects that will benefit people and the government as they diversify income and revenue sources. However, it is unfortunate that the move will greatly affect the social and economic aspects of the society, both to individuals and business owners. The challenges will result from the fact that the VAT does not separate between the rich and the poor, meaning that goods will be made expensive for the poor. Subsequently, the VAT will be inflationary as the current low wages will affect the purchasing power due to the high prices.
Specifically, the general cost of living in the United Arabs Emirates is expected to rise. All goods and services will be sold at higher prices, including the exempt or the zero-rated goods such as foods, health care bills, and school fees. The increase is attributed to the inability of the suppliers of foods and commodities to the schools and health facilities to offset prices. Generally, the customer spending is expected to rise by 5 percent every year. According to Oxford Business Group,(2016), only the banks and other financial institutions will not be highly affected. Oxford Business Group’s study across various countries indicates that an accelerated rate of price for goods and services does not financial services within the banks (Oxford Business Group, 2016).
The introduction of VAT impacts on businesses and consumers but the effects on the consumers are less than the normal inflation rate (Babu 2017). However, the impact will be higher at the luxury level which comprise of things like cars or real estates. One of the positive aspects of the VAT is that the resulting inflation effects will be felt temporarily. In the after-years, the rate of inflation is expected to stabilize as the suppliers and businessmen stabilize the prices while the employers adopt to the financial trend by reviewing salaries and wages (Babu 2017). Therefore, the government and other stakeholders should critically review the taxation process in a way that incorporates the consumer prices and the wage scale.
