Are university students struggling with VAT in the UAE?

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University students have to pay tax on their fees from January. A five per cent VAT is applicable on all private-funded higher education institutions in the UAE.
University students have to pay tax on their fees from January. A five per cent VAT is applicable on all private-funded higher education institutions in the UAE.

Dubai - If the institution is funded more than 50% by the government, it will not be taxed

By Sarwat Nasir

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Published: Sun 14 Jan 2018, 11:00 PM

Last updated: Mon 15 Jan 2018, 1:51 PM

Parents in the UAE were relieved that the Value Added Tax (VAT) will not be implemented on school tuition, though, higher education institutions were not spared from the tax.
Starting January 1, a five per cent VAT became applicable on all private-funded higher education institutions in the UAE, meaning university students must pay tax on their fees. If the institution is funded more than 50 per cent by the government, it will not be taxed.
What kind of an impact can a five per cent tax - which is considered the lowest worldwide - have on families and independent students that survive from salary to salary and are on a very tight monthly or yearly budget?
For a Nigerian student in Dubai, Honour Chokote, 21, the tax is set to have a "drastic impact" on her family's financial situation. Chokote's family will be using her siblings' fees that they have been saving up to cover the tax on her fees. Her parents, who live in Nigeria, pay Dh48,000 annually for her university fees - which means a new total of Dh50,400, including tax (Dh2,400).
Even though that amount may not seem much for many, for Chokote's parents, Dh2,400 is money they could use for her siblings' fees. Chokote's brother has taken off a semester from his university because of their financial struggles.
"My parents pay Dh118,600 for tuition, visa costs and my accommodation and I'm not adding other expenses. The tax is having a drastic impact financially because money that was set aside for my siblings will be cut to pay my fees," she told Khaleej Times.
"I feel like if there is one thing tax should not apply to, it is education because when you think about how much you spend on education and how much you could save without it, you tend to opt for alternatives."
Shabnam Bashiri, an Iranian student in Dubai, will be taking up a part-time job to help her parents pay off the additional costs of her fees that is being put on by the tax. Bashiri received a partial scholarship for her media communication studies, however, tax is still applicable on the annual Dh38,000 her parents pay on her tuition. "The tuition fee is around Dh50,000 annually, but with scholarship I pay around Dh38,000.
"The new tuition VAT inclusive has increased to Dh43,000 for my major, which will definitely make it a struggle, even with a scholarship. As college students, we're always trying to save as much as possible. I'll definitely have to get more part-time jobs to help my parents with the tuition," she said.
"My university gave us the option to pay for spring semester only before January 1 in order to get a five per cent discount, which I know a lot of people did. But the rest of the year will be tax inclusive, so we'll have to figure it out as we go.
"I hope universities will take into consideration that with everything being taxed now, it would really help if they provided more scholarships to students, or increased the discounts in the scholarships."

Parents find 'minimal' effect on family budget

The higher education private sector will remain attractive to families despite the five per cent value added tax on tuition fees, a VAT expert has said.
Khadija Rachdi, the head of legal and tax, compliance and regulatory affairs at Phoenix Management Solutions, said that the five per cent VAT is one of the "lowest" worldwide. She believes there will be only a "minimal" impact on family budgets because of the tax.
"The impact of VAT in the private sector of higher education is still unknown as of today," she said. "We have to keep in mind that it is a very low rate compared to other countries such as United Kingdom, which apply a rate at 20 per cent.
"We expect minimal impact on the family budget. The private higher educational sector will be still attractive for the families at this low rate.
"VAT has been implemented to raise an additional source of revenue for the GCC (Gulf Cooperation Council) and it is expected to generate approximately Dh12 billion for the first year of application in the UAE and thereafter, shall generate more revenues.
"The introduction of the VAT in the UAE has been motivated by the government to diversify the income source and dependence of the revenues from the oil and other hydrocarbons as well as to maintain and provide the high-quality public services.
"After the first year of implementation, the expert shall probably be able to identify the real impact of the VAT in each sector and specifically in the private higher education sector."
Besides tax on university fees, VAT is also applicable to uniforms and books in private schools across UAE. Rachdi said families are still seeking guidance when it comes to learning where and how the VAT will be applied in the education sector.
"As of today, it is still unclear which rate shall apply on specific supply of goods and services. Families are seeking more guidance on how VAT will be applicable in the education sector," Rachdi said.
"Basically, zero per cent VAT is applicable to the private and public-school education sector and related goods and services provided by education sector.
"The same rate at zero per cent is also applicable for higher education provided by institutions owned or funded by the government, as well as the related goods and services provided by these institutions.
"However, for the education provided by the private higher educational institutions and related goods and services, a VAT rate at 5 per cent shall be applicable.
Further, the five percent VAT will also be applicable on items like school uniforms, stationary items, electronic equipment, renting school grounds for events, after-school activities for extra fee and school trips for recreation or not within curriculum."

Overall liability of VAT does not seem to be on the  higher side

Aaqil Sharif (UAE VAT Advisor at AG Consulting Group)
The chilly wind is on the blow but VAT has made it warmer and is currently the hottest topic and is definitely the "talk of the town" right now. This is the second week since VAT has been implemented in UAE and people somehow have adjusted themselves in 2018. Let us take a look at VAT impact on higher education.
The UAE residents came up with a bit of surprise reaction since education could have been exempted in their point of view. However, there is a slight increase in the overheads of almost all higher education institutions, a part of which the UAE government is also absorbing, and for which applying VAT was inevitable to keep up the quality standards.
Although, the overall encumbrance does not seem to be on a higher side to tax payers, people are having a mixed reaction on the same. The VAT may not be the only reason to switch between different institutions providing higher education within the UAE since the standard rate is applicable to all of them. However, there is a possibility that some institutions may absorb a portion of the VAT and will be successful in getting better student strength.
There is equal risk associated with the quality of education. Higher education is a sensitive stage in overall academic and professional development of any student since it is the first step into a professional career. Hence, the risk and return analysis will be an area of concern. We cannot overlook higher education students who are already employed or having businesses. For them, VAT will not be a teasing factor since the increased percentage is within well manageable limit of five per cent.
How can middle income families be affected by this move? In the UAE, most of the middle income families prefer to send their young ones either to their home country or abroad for higher education. This can be one of the smart move from the UAE authorities to not to impose tax to basic education which will give breathing space to such families. A major concern for this group was VAT imposition on the grade school. However, only a slight increase in transportation, stationery and uniform cost due to VAT will be tightening up their budget to some extent. Since VAT is imposed on most of the goods and services, psychologically people will start making adjustments.

How will VAT affect education?

The tax is just a five per cent raise from a zero per cent, but it piles up towards the end. Already with the prices of university and school materials being really expensive, the tax is just making it much worse for families. They are being obligated to put in more money for stuff that they have no choice but to buy. Families are being held back from other leisure activities and emergencies that they have saved for.
Daniel Mendonca, university student
Of course, tax on higher education will be a burden for parents' shoulders. Though, it will help for the growth of the UAE as a nation. But there are worries about the quality and acceptability of the higher education programmes provided by institutions in the UAE in other countries and variety of courses available.
Bindu Satyan, parent
Higher education needs to deliver the quality of education always, which should not be compromised. VAT is essential and will not give any impact on that segment.
Pranesh Nair, Parent 

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