29 January 2018
When most people think about VAT, the first thing they think of is that they’re now going to have to pay a little bit more in stores or when dining out with friends. But what does it really mean for us, particularly when it comes to the areas that the average consumer might not think of – such as insurance?
Introduced on January 1, 2018, the new UAE Value Added Tax will see 5% tax added to many goods and services from clothing and retail to food, drink and even your utility bills. The tax will also be placed on the insurance policies we take out, whether they are optional or required. In Europe, insurance is exempt from VAT, while in other countries like Australia, for instance, VAT is applied on most types of insurance barring life insurance. This is the model that’s currently being followed in the GCC, with VAT now being added to all types of non-life insurance. This encompasses all general insurance premiums, including motor, home and travel insurance, while only life insurance is exempt. With the costs of VAT typically passed onto the consumer, this will mean that the cost of insurance will now increase for consumers.
Since the UAE currently operates on a system where health and auto insurance are mandatory, this means that those living and working in the UAE who own or rent cars, will see costs directly impact their spend. With the UAE insurance market being the largest in the GCC, this will have a considerable effect in this country and experts claim that consumer prices will now increase by an overall 1.4 percent due to an excise tariff.
Despite the inevitable increased costs, GCC residents can be thankful that the VAT will be rolled out at a rate of 5%, which is still considerably less than that of many other countries abroad – in fact, it’s among the lowest in the world. In Egypt and South Africa for instance, VAT comes in at 14%, while in Turkey it’s 18%, it’s 20% in the UK, and a whopping 27% in Hungary, according to publicly available figures.
While costs may increase, even if many types of insurance are now mandated by the government, it’s actually more important than ever for consumers to purchase insurance – and quality insurance – for the goods and services they’re spending their money on. Since they will be spending more on each item – be it a house, retail products, or the service plans they have subscribed to – the value of those items has increased, and therefore they are logically worth more – which means that in turn, there is more to lose if the items become at risk. Having a comprehensive insurance plan in place will ensure that should anything occur; the customer is protected with the best possible means of recovering from the incident. With what can potentially be a confusing system to follow – wherein the introduction of a brand-new region-wide system that will affect all residents that has not yet been seen before – it’s also more important than ever that businesses and individuals both choose to work with an insurance provider that they can trust, and who can provide them with adequate expertise to not only ensure they are covered, and help them avoid any penalties and slip-ups, but also help them potentially save money where they might be able to. Simply put, since there will be more at stake and more at risk, there is more that needs the protection of a great insurance plan in place. RSA is the insurance brand you can trust for comprehensive motor, home, travel or commercial insurance.