Abstract
Value added tax (VAT) discouraged consumption, encouraged savings, and generated higher economic growth. Evidence on the actual effectiveness of consumption taxes in changing the consumption patterns and stimulating savings is limited. This study used an ex-post facto research design to assess the impact of VAT on goods and services on the buying behavior of consumers in UAE. It analyzed the changes that consumers in UAE have made in their buying behavior after the imposition of VAT. Data used for the analysis was obtained using a survey questionnaire which examined the consumption patterns of the respondents. The study selected a random sample of 240 respondents from UAE. Segments of the UAE population have absorbed the additional costs of VAT without changing their spending habits but would likely change them in the future if the VAT rate increased, while lower-income households and those with greater than or equal to 5 were more impacted by VAT. The study is expected to shed light on the impact of VAT on the consumption behavior of households in the UAE and can give some insight to other Gul Cooperation Council countries who have implemented or are about to implement VAT. Key words: Value-added taxation; consumption taxation; household consumption expenditures; savings; economic growth; empirical investigation, Gul Cooperation Council.
Highlights
Implementing Value added tax (VAT) is a daunting task for any economy and has for long given a hard time to tax experts and economists in trying to determine its impact on a country’s economy. Carroll (2010) has identified VAT as crucial enough to impact the overall economic situation of a country
Of the total number of participants, 219(91.3%) reported that they knew about VAT
Half reported that VAT had affected their consumption (118; 49.2%) while the other half believed that VAT had no impact on it (n=122; 50.8%)
Summary
Implementing VAT is a daunting task for any economy and has for long given a hard time to tax experts and economists in trying to determine its impact on a country’s economy. Carroll (2010) has identified VAT as crucial enough to impact the overall economic situation of a country. Carroll (2010) has identified VAT as crucial enough to impact the overall economic situation of a country. The Gulf Cooperation Council countries started imposing taxes to reduce the budget deficit, which has become noticeable since 2015 due to a drop in oil prices from $115 per barrel to less than $30 per barrel in early 2016 (Augestine, 2016). Saudi Arabia and the UAE were the first two GCC countries which introduced VAT in January 2018. Bahrain started applying VAT on the 1st of January 2019. Qatar was expected to be the fourth Arab Gulf state to introduce a 5% VAT in January 2020, while Oman declared that it will not apply VAT until at least 2021.
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