VAT effect: New report forecasts negative impact on smartphone sales in Saudi Arabia, the UAE in first half of 2018

The introduction of a new value-added tax (VAT) in Saudi Arabia and the United Arab Emirates (UAE) next year will have a negative impact on the market for smartphones in the two Gulf Arab states, a new report showed.

A report by the International Data Corporation (IDC), a research firm specialising in the information technology and telecommunication sectors, has predicted a 10.1 percent decline in the volume of smartphone shipments to Saudi Arabia and the UAE in the first half of 2018, compared to the same period last year. (Read the full report here).

“As for the anticipated slump in post-VAT shipments in H1 2018, the additional 5 percent for VAT purposes will obviously have an impact on end user prices, and as margins are already extremely narrow in the mobile phone space there will be little room to maneuver with regards to these increases. However, the effect is likely to vary across different price bands, with target consumers for lower-priced models being much more sensitive to changes in price,” Isaac Ngatia, a senior research analyst at IDC said in a company press statement released on Tuesday.

IDC said its latest Quarterly Mobile Phone Tracker report showed that the overall shipment of mobile phones to the six members of the Gulf Cooperation Council (GCC) has increased by only 0.1 percent quarter-on-quarter in Q3 2017, while smartphone shipments declined 4.9 percent over the same period. On the other hand, the shipments of feature phones, a type of mobile phone that has limited features and moderate prices, to the GCC rose by 13 percent. The GCC region is known of having a high rate of mobile phone penetration among its majority young and tech-savvy populations.

“The GCC mobile phone market is already going through many significant challenges outside of VAT, due to various ongoing social, political, and economic developments, and VAT will only compound this dire situation,” the press release said, quoting Nabila Popal, a senior research manager at IDC.

“Indeed, many industry experts feel this is the worst possible time that VAT could have been introduced, with demand already faltering due to consumers no longer being enticed by the ‘amazing’ new features advertised by vendors as they try to push they latest devices.”

The economies of the six GCC countries, which includes Saudi Arabia, the UAE, Kuwait, Qatar, Bahrain and Oman, have been badly affected by the decline of oil prices since 2014. The GCC’s economy was also impacted by the ongoing war led by Saudi Arabia and the UAE in Yemen and the recent political tension between Qatar and several Arab states, including Saudi Arabia, the UAE and Bahrain.

On another VAT-related note, the UAE’s telecom operator du announced on Tuesday the launch of an online process to enable its business customers to claim back from the UAE government any VAT paid on their du bills, according to a du press release.

Officials from IDC and du were not immediately available to comment.

Click here for Zawya’s special coverage on VAT coming to the GCC.

(Writing by Yasmine Saleh, Editing by Shane McGinley)

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Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.

© ZAWYA 2017

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