Will Your Pay Hike Beat VAT in UAE?

Published December 28th, 2017 - 08:00 GMT
The skills in highest demand in 2018, which are likely to see an increase salary wise, are VAT expertise and digital. (File photo)
The skills in highest demand in 2018, which are likely to see an increase salary wise, are VAT expertise and digital. (File photo)

As the New Year approaches, employees generally look forward to pay raise and bonuses, hoping that their efforts will be rewarded through monetary benefits.

But that is not the case all the time. With some sectors growing faster than others, the chances for increment and job opportunities are higher for employees working in the growing industries.

In the UAE, the introduction of value-added tax (VAT) and growing adoption of new technologies is creating a lot of opportunities for employees and boosting demand for professionals.

"The skills in highest demand - which are likely to see an increase salary-wise - are VAT expertise and digital. We do not see salaries decreasing in 2018 but they will be flat in most sectors," says Leith Ramsay, managing director, Michael Page Middle East.

Global remuneration expert Robert Mosley has predicted that there would be some good news on the pay raise front in 2018 for UAE workers.

Mosley says salary increase forecasts for 2018 look quite favourable and he expects pay rises to be three per cent in the region.

Quoting latest statistics, Mosley said 34 per cent of employees received no salary increase during 2016-2017, while 66 per cent received an increase averaging 3.6 per cent with the majority based on performance.

Interestingly, according to Mosley, the basic salary trends based on various industry sectors were a complete reversal from what happened in 2016.

For example, in 2016 the transportation, logistics and cargo, insurance, retail, pharmaceutical, education, banks, financials and conglomerates sectors saw the lowest increases, while real estate and construction, FMCG, food and beverage, hotels/hospitality, healthcare and hospitals witnessed the highest increase in salaries. However, in 2017, the figures were quite the opposite.

Medical insurance and education benefits have seen the most significant negative changes, as these services are quite expensive for employers to provide.

Salary hike due to VAT?

Commenting on the hike in salaries due to VAT, Ramsay noted that there is no consensus among the companies.

"Some large organisations are only increasing junior/low level employees' salaries whereas others are following their normal process and adjusting in line with inflation. This is going to be a challenging period for all organisations. One point of view is that relative to net income in their home countries that they will still be better off in the region."

According to Michael Page, the challenge for all organisations entering 2018 is how to manage annual increases, given the introduction of five per cent VAT. The general view will be that five per cent VAT is still a lot less than the high level of personal income tax payable in most countries.

Meanwhile, Obaid bin Humaid Al Tayer, the UAE's Minister of State for Financial Affairs, ruled out salary hike for the public sector in 2018 due to VAT imposition during a Federal National Council session held on Tuesday. He said this decision has been taken due to a minimal impact of VAT on residents and businesses.

Ramsay noted that the key factors driving salaries will be the gap between supply and demand.

"Skills shortages attract premiums. The region is transforming in areas like the introduction of VAT, e-commerce is challenging traditional brick-and-mortar retail and organisations are upgrading their IT service delivery via cloud technology."

Sectors that are hiring

Ramsay reveals that banking, energy and real estate have already resumed hiring and will continue to do so in 2018.

"In the public sector, government agencies and authorities have adjusted to new budgets and are ready to implement new projects/initiatives. Healthcare, education and technology will remain steady," Ramsay said following a survey conducted by global recruitment consultancy Michael Page.

By Waheed Abbas

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