Dubai: Key retailers in the UAE consumer electronics industry expect the impact of value-added tax (VAT) to be felt for one quarter after the Dubai Shopping Festival, which ends on January 28.
VAT is being implemented in the UAE from January 1, 2018.
Niranjan Gidwani, CEO of Eros Group, said that the impact will be there for a short term. Some purchasing decisions will get delayed and some will be preponed to pre VAT.
“Consumer electronics is not a daily purchase and some consumers may buy before December while some will wait and see to see the impact. The best part is that the UAE has the least taxation in this part of the world,” he said.
He added that it is possible for retailers to absorb VAT on some high-margin products such as domestic appliances, fridges, washing machine and A/Cs but it is unlikely that the trade may absorb the tax on small-margin products like smartphones and TVs.
Nadeem Khanzadah, head of omnichannel retail at Jumbo Group, said that the impact will be there at the time of implementation of VAT and “we will see a robust demand before that, especially in December”.
“During DSF, retailers will be offering discounts and promotions. For one quarter, we will see a kind of downward trend in sales. Once people get used to VAT, it will be back to normal,” he said.
Ashish Panjabi, Chief Operating Officer at Jacky’s Business Solutions, said that people are used to paying VAT or sales tax globally but the only positive side is that it is only five per cent in the UAE.
In the West, VAT ranges between 15 per cent and 27 per cent.
Retailers said that they don’t have the margin structure to absorb VAT and it has to be passed on to customers.
In the long run, Kahanzadah said that the combination of vendors, retailers and customers may absorb VAT.
The current law states that there is no VAT reimbursement and tourists will need to pay 5 per cent tax.
Khanzadah said that tourists are not the biggest purchasers of electronics. The buying power of tourists has come down for the past two to three years due to the decrease in tourist inflow from Russia and China.
“The bulk of the sales have always been the local residents. Tourists now contribute around 20 per cent to the total sales,” he said.
Panjabi said that the appeal of Dubai has changed a lot of tourists. Once upon a time, they came to Dubai is because it is cheaper and that is not the case now. But the advantage of Dubai is the availability of products such as American, European, Asian and Indian brands virtually available in every mall over here.
“We don’t find that sort of range anywhere in the world and this is the advantage that Dubai will continue to hold. VAT refund will not happen as it is very low compared to other parts of the world,” he said.
Moreover, he said that electronics is just one on the list for tourists and it is not the main reason for shopping. Dubai is also part of major global launches such as Samsung Galaxy Note 8 and iPhone 8 as the products will be available in the UAE at the same time as the rest of the world.
“The impact will be same as the Salik. First month or so, you will avoid the Salik but after that you accept it and move on with it,” he added.