Across the Gulf new value added tax (VAT) laws are just over three months away from coming into force - potentially changing the region’s finances forever.
From January 1st 2018 a 5% VAT will be added to certain items across the GCC region - with Saudi Arabia and the United Arab Emirates amongst the first locations to introduce this. To help understand what it could mean for you if you’re living in the region, or considering a move, we’ve produced this rough guide.
What does the VAT cover?
VAT will be added to a range of different things throughout the region, however the law is so complex that what it will and won’t increase the price of can be confusing.
From the beginning of October this year fizzy drinks and tobacco will face an additional tax, in the first move of its kind in the region, in an attempt to raise funds whilst encouraging a healthier lifestyle.
After this comes the main tax introduction, which will add 5% onto the cost of (amongst other things):
- Electronic Devices
- Meals out
- Cinema Tickets
- Food/Drinks that are high in fat and/or sugar
What is exempt
When people hear of taxation laws in the Gulf, they instantly start to fear for their tax-free salaries. They will remain untouched however, with no immediate plans in place for income-tax laws.
Salaries are far from the only things which are exempt too:
- Residential Property
- Undeveloped land
- Public transport
- Air travel
- Supply of educational services
- Supply of healthcare services
- High grade precious metals
How much is it expected to raise next year?
In the UAE alone VAT is expected to generate more than Dh12bn (£2.5bn) in its first year alone, and then Dh20bn (£4.2bn) by the end of 2019 according to Economy Minister, Sultan Al Mansouri.
Multiplied throughout the six GCC countries this figure could play a huge role in plugging the gap created by the oil slowdown in the region’s economy.
What does it mean for healthcare?
Aside from a potential rise in the cost of health insurance, the impact of VAT on healthcare should (and I stress ‘should’ here) be a largely positive one.
The higher cost of unhealthy products should reduce the amount consumed by those living in the countries, potentially helping to improve the health of these nations as a whole.
Whilst essential medical procedures won’t be subject to further costs, selective services - such as cosmetic surgery and acupuncture - are likely to attract the tax, according to the CEO of Abu Dhabi based NMC Health, Prasanth Manghat.
Private hospitals throughout the region may also face larger bills for non-medical costs, such as promotional materials, hosting events and the purchasing of furniture and office supplies for waiting rooms and non-medical departments.
What will VAT mean for healthcare in the Gulf then? Well it should lead to a healthier population, and greater funding for public hospitals region-wide. That’s certainly the aim anyway.
What will this do to the cost of living in the Gulf?
Increase it. Naturally. However by how much will depend on your own unique circumstances. It will depend on lifestyle choices, your location and even the type of food you consume!
Locations like Dubai, Abu Dhabi, Manama and (certainly until recently) Doha have always been expensive. High tax-free salaries make them the perfect location for high quality shops and restaurants - as well as prestige car manufacturers - to increase their sales figures.
The introduction of VAT is likely to increase the prices in these locations, however with costs already on a par with Central London it’s unlikely that this increase will be too noticeable. Especially if you lead a healthy, relatively inexpensive lifestyle.
Things may be more noticeable in some of the less expensive locations. Riyadh, for example, has a 60% lower cost of living than in Dubai, whilst the same can be the case for Muscat in Oman.
If your move is solely financially motivated then it pays off to do your research into the cost of living in advance - and be prepared to move to a less conventional location than the expat hotspots of Dubai and Abu Dhabi.