Dubai: The head of the Federal Tax Authority has warned retailers against raising prices ahead of the official launch of the Value Added Tax on January 1.
“The number one thing is, it’s very clear that nobody is allowed to charge VAT before January 1, 2018,” said Khalid Al Bustani, director general of the Federal Tax Authority.
The senior official added that if customers received a receipt which showed VAT, they should pass it on to the FTA, who would fine the company.
A number of retailers across the UAE have begun raising prices ahead of the January launch of the VAT, according to members of staff at each store who asked to remain anonymous. Importantly, the staff members said the retailers who have raised prices are not yet collecting VAT and are not claiming to be charging VAT.
Experts Gulf News spoke to say that the potential motivation behind this price increase is twofold: Firstly, to acclimatise customers to higher prices ahead of the January 1, 2018 implementation date of VAT, and secondly, to use as a marketing tool after January 1, when they can claim that they will not be increasing their prices.
“Globally, we have often seen that when a tax is introduced, as a marketing tool many retailers will announce that they will not be increasing their prices. A lot of these will have already increased their prices in advance,” said Nikola Kosutic, head of research at Euromonitor International.
Mahir Ali, operations director at tailor Ascots & Chapels for the Middle East and South East Asia, said: “There have been a lot of retailers doing that … There will be a bunch of retailers who will factor in the VAT before January 1, and then come January, they will say that they haven’t changed their prices, despite already being inclusive of VAT.”
Retailers have a number of mechanisms they can use to try and pre-empt any negative impact from the introduction of a tax, Ali added.
Gulf News has found multiple instances of price increases across stores including major pharmacies, fashion retailers, clothiers, and household goods sellers. Speaking on the condition of anonymity because of the sensitivity of the topic, staff members said that they had been asked to reprice multiple products to reflect the introduction of VAT, before the tax is officially implemented on January 1, 2018.
Staff members at three stores across two malls said that they began increasing prices in early December.
A pharmacy employee at one of Dubai’s largest malls said that the company’s management had emailed instructions regarding the increase of prices, but had yet to share the list of products that would need to be repriced.
One major retail giant, which owns a number of brands, said in a statement to Gulf News: “Like all retailers, we continually adjust our prices, both up and down. There are numerous factors that play a role in our pricing strategy, including logistics costs, fluctuating exchange rates and costs of goods.”
The franchise-operator made no mention of claims to Gulf News that the prices had been increased to include VAT, instead saying that they had “been closely reviewing legislation and preparing for several months to ensure our business is ready for the implementation of VAT, and to make the transition as easy as possible for customers.”
Several retailers declined to comment for this story.
While stating that retailers taking advantage of customers under the guise of VAT was an important issue to address, the FTA’s Al Bustani emphasised, however, that any complaints about retailers increasing prices and not telling customers was “not [the FTA’s] responsibility,” as it was “not a tax issue.”
He instead said that complaints not involving a receipt should be directed towards the Commercial Compliance and Consumer Protection (CCCP), a department of Dubai Economy.
Speaking to Gulf News via email, Mohammad Lootah, chief executive of the CCCP said that the government office had “received a few cases.”
Lootah was responding to a question about whether his department had fined any stores caught increasing prices unfairly.
Last week the CCCP called on retailers in Dubai not to use VAT to manipulate or increase prices.
They added that retailers can only display new prices, inclusive of VAT, from January 1, 2018, while displaying the VAT applicable separately on every invoice at that time.
“Dubai Economy is committed to protecting consumers against unscrupulous trade practices. Retailers should comply with their price list and anyone who increase prices without any justification will incur a fine,” Lootah said in a separate statement.
“We call on consumers to watch out and ensure that there is no price manipulation or non-compliance with the laws,” the chief executive added.