Abstract

Value added tax (VAT) discouraged consumption, encouraged savings, and generated higher economic growth. Evidence on the actual effectiveness of consumption taxes in changing the consumption patterns and stimulating savings is limited. This study used an ex-post facto research design to assess the impact of VAT on goods and services on the buying behavior of consumers in UAE. It analyzed the changes that consumers in UAE have made in their buying behavior after the imposition of VAT. Data used for the analysis was obtained using a survey questionnaire which examined the consumption patterns of the respondents. The study selected a random sample of 240 respondents from UAE.  Segments of the UAE population have absorbed the additional costs of VAT without changing their spending habits but would likely change them in the future if the VAT rate increased, while lower-income households and those with greater than or equal to 5 were more impacted by VAT. The study is expected to shed light on the impact of VAT on the consumption behavior of households in the UAE and can give some insight to other Gul Cooperation Council countries who have implemented or are about to implement VAT.

Key words: Value-added taxation; consumption taxation; household consumption expenditures; savings; economic growth; empirical investigation, Gul Cooperation Council.