Residents shopping at Mushrif Mall, Abu Dhabi. Image Credit: Abdul Rahman/Gulf News

Dubai: Ten days after Value Added Tax (VAT) came into effect, residents are making smart adjustments to their monthly budgets to absorb the rise in the cost of living.

While VAT is a sustainable indirect taxation that is applicable in most sustainable economies around the world, financial experts say it is likely to increase the cost of living in the UAE by 2.5 per cent to 5 per cent per annum.

Preeti Bhambri, financial expert and proprietor of moneycamel.com, evaluated the upside and downside of VAT: “In line with most of the world, the UAE has implemented VAT to be able to meet growing infrastructure expenses. As global citizens, most UAE residents are used to paying Goods and Services Tax (GST) in their respective countries and understand the [long-term] impact. VAT is a source for the UAE government to increase revenue to meet the increased cost of providing the things that we love the most about UAE — impeccable infrastructure.”

Gautam Duggal, regional head of wealth management for Africa, Middle East and Europe and head of wealth management for the UAE, Standard Chartered Bank, concurred with Harrison.

“We see the introduction of the VAT as part of a broader set of policy measures aimed at diversifying current fiscal revenue streams in the GCC. The initial reactions following this introduction is quite expected as for the first time here in UAE everyone has to pay a “tax”. However, this was a much-needed impetus to help grow the country’s economy over a long term.”

Duggal advised people to be smarter about their monthly spending plans. “As of now, everyone seems to be impacted, but the way I look at it, it is going to force an individual to plan his expenses well and that quite likely might encourage a savings culture here in the UAE. In addition, the introduction of VAT would also force one to look at his/her daily expenses and ensure that every dirham is rightly spent. It might have an initial impact on spending being slowed down but once families have a better understanding of where they are spending their hard earned money, it’s going to stimulate the growth for sure.”

Gulf News spoke to residents to know how they were tweaking their daily spending habits.

Ritchel Aquino Pangilinan, Filipina, physiotherapist

“I have two daughters and we are a family of four. We are looking at cutting back on our household spend for things such as groceries and other dispensable food items. We will of course prioritise our budget for necessities such as rice, bread, meat, vegetable, milk, etc, and reduce spending on items such as chips, chocolates, sweets and the like. We will also reduce our cinema viewing at theatres and not buy any electronic products such as smartphones, tablets, this year. I am sure such pruning will help balance the budget.”

Navin Ranke, Indian, accountant

“VAT has definitely moved us towards purse-strings tightening mode. My wife and I have cut back on retail shopping sprees. For groceries, we now shop wholesale and that [we hope] will make a big difference in the long run on our food bills. We are also bulk buying grains, oil, spices, and plan to stock a couple of months’ supplies. It will save fuel, time and retail margins. This year, I have decided not to shop for a car, a laptop or any electronics. While shopping for items of necessity such as clothes for the family will have to be done, we are looking at cutting back on all luxury shopping. I know VAT is something which will eventually be accepted and absorbed as just an extra cost in our lives, but for the time being, we are making an effort to keep our expenses low as we have to make sure our earnings do not fall below our expenditure.”

Rupert O’Connor, Briton, financial adviser

‘As someone who advises people on how to manage their finances and have savings, I always strive to tally income with expenditure. Post VAT, it has become important to sit down with the spreadsheets and see where I can cut back so as to accommodate the new expenditure. In order to make room for the extra cost, I watch everything I spend. I would advise people to keep their receipts in a glass jar and at the end of the month, sit down and tally these to get an idea of their spend. I have stopped monthly online subscriptions for magazines. People can keep healthy in inexpensive ways such as walking, cycling, exercising at home and can cut back on gym memberships. It is cheaper for us to do bulk buying for expensive items from home countries. My wife buys clothes and other such items from the US while on a visit home, for our child. It is important that people have an affordable lifestyle which leaves them with disposable income that encourages them to save.”

Saeed Mohammad, Egyptian, taxi driver

“My family is not here and I do not shop and go to cinemas so VAT will not affect me. However, I am cutting back especially on karak chai and eating out. I now keep tea bags and a flask of hot water so I can save the Dh2 per cuppa. My roommates and I buy our groceries and other food items in bulk and pay by credit card so that we avoid the wastage of fils that are lost in exchange because shopkeepers are not able to pay back exact change. We used to go for movies at least once a month; now we have decided to subscribe to an online movie service collectively. I would advise people to watch their electricity bills, cut back on phone calls, go out to beaches and parks instead of theme parks and expensive gaming places. At least that is what we plan to do this year. I cannot afford to waste a single dirham.”

Model budget for a family of four

Preeti Bhambri created a model budget for a family of four. A family spending around Dh300,000 per annum (Dh25,000 per month) can expect their expenses to increase by Dh10,000 a year. While that’s a big number, you can make small changes to cut your monthly expense by up to Dh500 every month by following some simple tips:

1. Reduce your movie bills by subscribing to an online entertainment portal. (Monthly saving: Dh100)

2. Spend more quality time with your family on the beach, or just play family games at home instead of taking kids to expensive play areas. (Monthly saving: Dh250-Dh300)

3. Shop online and use shop-n-ship to deliver. Sign up for your favourite stores online in the US and the UK and enjoy special promotions all the year through. (Saving: 15-25 per cent)

4. If you are used to buying from your home country, then do so more now by fully utilising your baggage allowance when you travel back home. (Saving: 15-25%)

5. Invest in 24 carat gold bars instead of buying jewellery and storing as an investment. There is no VAT on gold bars.

6. Whether travelling to work or dropping kids to school, you can save on fuel cost by creating car pools. (Monthly saving: Dh100)

7. Plan your purchases in advance for recurring annual expenses such as festivities and holidays. Take advantage of airlines sales and book accommodation in advance to get best hotel prices. (Saving: Up to Dh400 per ticket)

8. Use discounts available through Group On (up to 40 per cent off) and The Entertainer (1 on 1 offers on restaurants, spas and hotels)

9. Pay your bills with a credit card to round off to the exact bill to save the fils that are never paid back. (Saving of at least Dh100 a year)

10. Do not take a personal loan to meet your increased expenses.