UAE to introduce VAT, corporation tax

Once introduced it would make the UAE the first Gulf state to tax at the point of sale

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Shoppers in the UAE could soon be paying more at the checkouts following the introduction of a value added tax (VAT) UAE Arabic newspaper Al Ittihad has reported.

The UAE Government has drawn up plans to introduce both a nationwide VAT and a corporation tax the report added.

Once introduced it would make the UAE the first Gulf state to tax at the point of sale.

It is thought the government has been advised by the IMF to set VAT at 5 percent, although no figures have been released, the report added. But this is likely to be higher for luxury goods, alcohol, and tobacco - while basic goods and essentials would be exempt from the tax.

William Jackson, a senior emerging markets economist at Capital Economics said: “VAT is likely to have an effect on consumer spending because it will immediately push up consumer prices.

“In the near term, it will act as a drag on growth.”

According to Al Ittihad, the government has not provided any details on their plan for implementing a corporation tax.
But the UAE only implements corporation tax on foreign banks’ operations in the country.

The new draft proposals laws have been drawn up by the Ministry of Finance which regulates federal tax collections and government accounts.

It is thought the process of turning this into law will take time, as it still needs to be passed through various government departments, the Federal National Council, the Federal Supreme Council, and signed by the President Sheikh Khalifa.

“The draft of the corporate tax law and the value-added tax law has been discussed with the local and federal governments,” Younis Haji Al Khouri, an undersecretary at the Ministry of Finance, stated.

Jackson said the introduction of VAT “reinforces the impression that the UAE is the one Gulf state that is taking fiscal consolidation seriously”.

He added: “It seems that the UAE is taking the most serious steps to increase non-oil sector government revenues of all the Gulf countries.

“The UAE is in a stronger position than other Gulf nations because policymakers have more confidence that country’s private sector is fully functioning and well developed, and because its economy is more diversified away from dependence on oil.”

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