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Ahead of 2018’s introduction of 5% VAT on UAE goods and services, the country has implemented what has locally been monikered ‘Sin Tax’. As of 1st October 2017, a 50% tax has been levied on soft drinks such as cola, and a 100% tax has been added to energy drinks, like Red Bull, and all tobacco products. If you’re reading this in the UK, where 20 cigarettes can cost £10.00, a 100% increase may seem like quite a leap. However, in the UAE cigarettes cost far less. A packet of 20 premium cigarettes costs less than £2, brands outside of the group of well-known manufacturers charge considerably less, and many convenience stores sell single cigarettes.
The UAE has traditionally been advertised by recruiters as a tax-free paradise. As with most advertising however, this claim is somewhat misleading. There is, and is no plan for, personal income tax. But it is important to put into context how important a move ‘Sin Tax’ is, as it is the first piece of legislation of its kind and puts pay to the claim that the UAE is tax free.
Early estimates claim Sin Tax is going to generate $7 billion for the Federal Budget in its first year. Popular opinion often concludes that taxing harmful products is an effort to combat their usage, however tax is a revenue generator rather than a healthcare deterrent and whilst the expected income will likely go toward treating those that need medical services, it will also be used to build infrastructure, pay teachers, and desalinate water.
Whilst the lack of personal income tax and the higher salaries available make the UAE a very attractive place to live and work, it is and has traditionally been, a cash economy. Tax revenue will help the government better manage existing services and may help it add new ones, which longer term could turn the UAE into a tax paying paradise as opposed to the tax-free one we’ve historically been told it is.