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UAE expert says VAT may affect construction costs

The tax "will play a major role" in the property end-user segment, but construction salaries are unlikely to be affected, an accounting expert told Construction Week

Construction costs may increase following VAT implementation, a Dubai-based expert said [representational image].
Construction costs may increase following VAT implementation, a Dubai-based expert said [representational image].

A Dubai-based accounting expert said the upcoming implementation of value-added tax (VAT) could impact construction costs in the country. 

Kunal Bilakhia, senior consultant at Dubai-based SM Joshi Chartered Accountants, told Construction Week that the tax "will play a major role" in the property end-user segment as well.

READ: Is the GCC's workforce ready for VAT?

He continued: "Only residential property and bare land will be exempt from VAT.

"However, [the tax is] more like premium pricing for those who deal in properties. They pay it all the time – this time, it will lead to better governance."

Bilakhia added that businesses with short debtors turnover periods are less likely to feel severely impacted by VAT.

"Whatever you pay in the form of VAT is debit on your cash flows, and whatever you earn as VAT is a credit on your cash flows," he told Construction Week

"So, if you have a quick collection cycle, your cash flows will more or less remain the same. However, if your firm’s collection cycles are long, then you may feel the pinch of 5% on your cash flows."

However, Bilakhia said it is unlikely that VAT will affect construction salaries.

"I don’t see any effect from VAT on current salaries, and you will still make the same money," he explained.

"Legally, VAT cannot be the reason for reduction in expenses like salary, since you’re bound by the labour contract. It is a different story for bonuses, since a bonus is paid out of distributable profits." 

READ: UAE President approves VAT law as sectors prepare

Bilakhia's views were published as part of a special feature examining the VAT-readiness of the GCC's workforce.

Click here to read the article, which was published in Construction Week #668 (16 September, 2017). 

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