December 1, 2019

Addaera Research & Polls Centre: Corporate Cashflow Slowdown Observed After VAT, Consumers Resilient to Higher Cost of Living (2)

Public Opinion on the Impact of VAT

Results of the public opinion field survey on VAT showed significant improvement in the public awareness level of VAT aspects as well as a proper adaptation to tax implications in terms of purchasing behavior, spending, savings, remittances and plans of extended residency in the UAE.

Utilizing a stratified random sample, the study was conducted in different locations in Dubai from 10 October 2018 to 6 November 2018. The survey targeted respondents from different nationalities by their expenditure rates as per Dubai Statistics Center data.

The results were obtained through a comprehensive statistical comparison between two-phased data. Findings were reported in light of statistical comparison between results of the second phase of study and those of the first phase which was conducted from 28 February 2017 to 20 March 2017 before VAT implementation; in addition to new research themes including actual impact on consumers behavior after VAT implementation.

Asians made the largest percentage of sample in both phases, reaching 45.9% in the second phase of survey after VAT implementation in 2018 and 45.5% before implementation in 2017, while Emiratis made 24.2% in 2018 and 24.6% in 2017. Arab respondents were 16.7% of sample in 2018 and 16.6% in 2017, Europeans 10.6% in 2018 and 9.8% in 2017.

Limited Change in Consumer Purchasing Habits

Results revealed that only 37.1% of respondents have altered their purchasing habits after VAT implementation attempting to cope with increased prices of goods and services compared to 69.2% who had expected their purchasing habits to change before VAT implementation in 2017 survey. 47.6% confirmed that their purchasing habits did not change compared to only 12.5% who ​​expected their purchasing habits to stay unchanged in 2017.

Luxury goods are chosen by 59.3% of respondents to be the most affected after VAT implementation. Spending on food orders and dining out changed by 57.2%, electronic and electrical appliances by 53.3%, grocery 52.2%, entertainment 51.9%, hanging out 48.1%, fuel 42.9%, travel 41.4%, and retail stores at gas stations 40.7%. Education was affected the least by VAT according to 26.3% of respondents, followed by local transportation within the UAE by 34.6% and online shopping by 39.1%.

Pre-VAT Savings and Remittances Rates Kept by Majority

Results indicated that VAT implementation doesn’t impact remittances of 71.1% of respondents versus 28.9% who pointed out that their money transfers are affected.

On the other hands, 63.6% of respondents indicated that their savings are not affected by VAT implementation; however, savings of 36.4% are affected with 52.5% of whom mentioned high costs and lack of spare cash as main reasons.

Residents Tend to Continue Living in the UAE despite VAT

Data analysis showed significant decline in number of residents who pointed out that they could reconsider their extended stay in the UAE after VAT implementation.

40.1% of respondents hinted that they may think of leaving the country in 2018 survey compared to 68.7% of respondents who participated in the first phase of survey before VAT implementation in 2017. Meanwhile, 59.9% denied any VAT effect on their decision to continue living in the UAE, compared to 31.3% in the previous year.

Public Expects VAT to have Positive Effect on Economy and Prices

Results revealed noticeable improvement in number of respondents who believe that VAT implementation is a positive procedure enfolding economic benefits for the UAE. 77.8% expressed their support to the government decision compared to only 28.1% in 2017 before VAT implementation.

22.2% don’t not see VAT a positive step compared to 69.1% of respondents who took part in 2017 survey.  On the other hand, 59.7% of respondents agree that VAT implementation will help stabilize prices in the long run, while 40.3% disagree. Half of respondents agree that tourism is affected by VAT, while 49.9% disagree.

Most Emiratis Miss out on House Construction VAT Refund

Results showed that 78.1% of Emirati respondents don’t know that VAT charged on house construction is refunded, versus only 21.9% who know that.

Out of 21.9% who know that house construction VAT is refunded from the Federal Tax Authority, only 37.7% are familiar with VAT refund procedures.

TRN on Tax Invoices Unchecked by Half Consumers

Research revealed that 50% of respondents do not check the Tax Registration Number (TRN) on tax invoices. 39% check the TRN while 11% do not know what TRN is.

From the 39% who check invoice TRN, there is 54.8% who do not pay VAT when it’s not printed on the invoice. Regardless the TRN, 26.5% pay the VAT amount while 14.8% do sometimes.

56.4% check the VAT amount clarified on the purchase invoice, 26.1% do sometimes and 16.6% never do.

Public Awareness Level of VAT Grow Higher

The vast majority of respondents at 96% know what VAT is according to 2018 survey results compared to 71.2% in 2017.

Statistics showed that 99.2% of respondents who know what VAT is, are informed that VAT is implemented in the UAE, compared to 82% in 2017.

Social media platforms are the main source of awareness about VAT implementation in the UAE by 54.1% of respondents; 36.2% mentioned word of mouth, 32.5% newspapers, 26.6% television, 24.4% government agencies websites/manuals, 22.7% radio and 3.3% other sources.

However, information about VAT type is still mixed and unclear a year after implementation. 29% of respondents indicated that VAT is sales tax, 26.6% direct tax, 20.4% indirect tax. 12.9% pointed out that they do not know the VAT type.

Awareness level that VAT is an indirect tax declined to 20.4% in 2018 from 46.2% in 2017 before the application of the tax to after application. Emiratis are the largest nationality that knows that VAT is an indirect tax at 33% of respondents.

97.3% of total respondents know that VAT is implemented at 5%, compared to 69.5% in 2017. 22.9% of respondents were unaware of VAT percentage before implementation in 2017. 58% of respondents found to be aware that the Federal Tax Authority is the government institution responsible for VAT implementation in the UAE, compared to 34.1% in 2017 but 89.9% don’t know how to file a complaint related to VAT.

List of Exempted Goods and Services Narrowed in Public Perception

Exploring public awareness level of VAT taxed and exempted goods and services, respondents who believed that VAT is imposed on all goods and services has increased to 71.6% compared to 54.5% of those who were surveyed before implementation in 2017.

List of exempted goods and services is narrowed according to public opinion; as only 31.9% included health services compared to 60.8% in 2017. Education is believed to be tax-free by 24.1% of respondents compared to 54.7% in 2017; and 100 basic food items is believed to be exempted by only 11.4% versus 53.8% a year earlier.

51.8% of respondents pointed out that they pay VAT on government services, while 18.8% don’t do, 12.4% maybe do and 17.1% don’t know if they pay it on government services.

Corporates Cash Flow Acceleration and Market Price Control Recommended

In light of study findings, VAT implementation have significantly impacted business sector institutions in multiple ways. As cash flow slowdown is one of major challenges, VAT refund mechanisms need to be reviewed and enhanced for more agility and accelerated corporate cash inflow with aim of sustaining business activities.

In addition, sales decline requires respective bodies to raise public awareness about taxation scope, including taxed and exempted transactions; as well as VAT refund on both retail purchases for tourists and house construction services for Emiratis.

On the other hand, public consumers are seen to be highly resilient to the rising cost of living in Dubai after VAT implementation. Rational spending and slight change of purchasing habits helped consumers maintain their usual savings and remittances; however, inflation rates should be kept at minimum to safeguard households against potential difficult living conditions.


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