Dubai, UAE. Dubai, UAE.

Respondents on the 10th annual Hotelier Middle East 2018 Salary Survey revealed concerns on the balance between rising living costs in the GCC and the newly-implemented value added tax (VAT) in the UAE and Saudi Arabia.

While two of Middle East’s biggest economies brought the value-added tax or VAT into effect on January 1, 2018, other GCC countries like Oman and Kuwait opted to delay the implementation.

The VAT adds a 5% tax on end consumer products but salaries remain unaffected by the new levy. 

The 5% levy, still lower than the global average of 15%, is very new to the region. On the survey, when asked if VAT will affect salary and standard of living, there seemed to be a consensus on the fact that with 5% increase in consumer costs but lack of salary upgrades, there would be notable changes and that VAT implementation is sure to affect the lifestyle standards. One respondent said: “Absolutely will. When no changes are being made to my current pay, but the cost of living increases, it is time to make sacrifices.”

Another respondent agreed with the sentiment and noted: “VAT will definitely have a negative impact on inflation. If basic salary is not adjusted annually as per inflation, it will negatively impact purchasing power and reduce Dubai’s attractiveness for an expat.” When asked about how VAT is affecting hoteliers, Fairmont Dubai recruitment manager Mary Redman told Hotelier Middle East that her colleagues are being pre-emptively cautious in the wake of VAT. 

“Our colleagues are definitely more cautious and mindful of spending on their personal goods now, hence I believe that not to affect their standard of living,” Redman says.

However economists have rebutted that VAT will have long-term benefits not only for the country but will also eventually boost hiring. Harish Bhatia, a management consultant at Korn Ferry Hay Group told The National during an interview that the lack of prior experience with regards to tax in the region has been the root cause for overwhelming confusion and anxiety over its impending long-term effects on the industry.

“We’re all making a big deal over VAT because it’s a new tax and we’ve never played with the word tax in this part of the world, but it was inevitable so the government has other sources of revenue,” Bhatia said. According to Dubai government authorities, the first year of VAT is expected to draw US$3.26 billion while in the second year, the net amount is expected to rise to US $5.4 billion and ultimately boost hiring in the region.

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