Post-VAT: How the UAE consumer's buying habits are changing

Dubai - Residents have become a lot more cautious about planning their household budgets

Residents across the UAE have become a lot more cautious about planning their household budgets in the wake of the value-added tax (VAT), with many looking out for special offers that will ease financial pressures.
Several residents told Khaleej Times that they had thought ahead in the days leading up to the implementation of the VAT, and purchased expensive items, such as electronics, that would have made more of a dent in their wallets with the addition of the VAT.
Rizwan Khan, a resident living in Dubai, said that he had shopped for most of his electronics in December. Right now, he estimates that his biggest upcoming expense would be a PS4 Pro.
"The VAT hasn't made that much of a difference, unless you are buying items such as laptops and smartphones," he said. "Grocery shopping has become a little bit more expensive as well, but retailers are helping shoppers by launching lots of VAT promotions and fixing prices for some items, especially in hypermarkets. We are staying within our budget by only buying what we need, and comparing prices on various items to get the best option."
Khan also noted that he had cut back on how many times he eats out with his family. "It is just a matter of being careful about what you are going to spend, and whether you really need to," he said.
Anurag Chaturvedi, managing partner at Chartered House Tax Consultancy, noted that when it comes to household budgets, one of the primary concerns that residents have right now has to do with inflation.
Annual consumer price inflation jumped to 4.8 per cent in January, the highest since 2015, but dropped back to 3.4 per cent in March, according to estimates by the IMF. Inflation is expected to average 3.5 per cent this year, up from 2.0 per cent last, but will ultimately settle around 2.5 per cent.
"Inflation is the rate at which the cost of living becomes more expensive and, therefore, it is an important component of your short-term budget planning, as well as your long term financial plan," Chaturvedi said.
"Normally, the VAT has been inflationary in most of the household spending, including food, clothes, entertainment, fuel, and utilities such as telecom, electricity and water. In addition, you also have service fees for insurance, and maintenance, and this has raised the cost by five to seven per cent on account of the VAT and cost of cashflows deficits."
However, he also noted that key expenses such as education, healthcare and residential rent remain unchanged due to the zero rate of tax.
Similarly, Vishant Mehta, manager of Internal Audit at Al Shirawi Group, said that with the increase in oil prices, inflation has risen to 3.5 per cent in the UAE, as VAT and higher oil prices impact the economy.
"With the rise in oil prices, normal house hold budgets are set to rise due to the inflationary pressure," he said. "With the average UAE household spending about 11 per cent of their budget on transportation, the impact is largely seen on an individual's transport budget. The fact is that cost of living is on the rise, especially in the area of schooling, rents and utilities."
Despite this, Badriya Al Raeesi, a Dubai resident, says that it has become much more difficult to maintain a fixed budget with the addition of the VAT, especially when it comes to shopping for small children.
"It's not easy shopping for a baby with the VAT," said Al Raeesi, who has a one-year old son. "When it comes to babies, you have a set spending that includes their milk formula, diapers, baby food and clothes - on top of all this, we have to pay VAT. At times, it can become a bit of a burden, especially when you consider how fast toddlers grow, and how dirty their clothes get throughout the day."
She further added: "My son is growing, so his clothes wont fit him after a few months. That means that I will have to buy him more clothes for the future. Many times, you have to purchase baby clothes by keeping in mind that he will be growing into them. In addition, you have to buy different clothes for different seasons and which are suited to the weather. All of this has made the situation really challenging, and it has affected my savings, as well as my husband's. I am glad that we don't have the VAT on healthcare, or else it would have been another big challenge for us."
- rohma@khaleejtimes.com