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Value Added Tax or VAT is an indirect tax imposed on the ultimate consumption of any goods or services. Such tax is to be collected by business entities on behalf of the Government at a rate of 5% at each step of the supply chain. VAT paves the way for revenue generation and for taking business to the next level.
E-commerce is a fast growing style of business. E-commerce is not only confined to online trading but also for ordering food and clothes online, streaming music and videos and what not. Since 1st January, 2018, every service that is provided through E-commerce will be charged at a VAT of 5%.
Impact of VAT on E-commerce sales
VAT in Dubai will make the services and products provided online a bit expensive. It will result in increase in cost and decrease in profits for the businesses. The price increment of 5% will shake the budget of consumers.
The purpose of introducing VAT in Dubai was not only to diversify the Government’s source of income but also to streamline functioning of businesses in Dubai. Initially, there was a decrease in E-commerce sales. It took some time for online business houses and their customers to get used to the new rules and regulations and revise their budgets accordingly.