5% Vat (value added tax) in UAE from 2018
Filed on February 25, 2016 | Last updated on February 25, 2016 at 09.09 am
Corporate, income taxes not under consideration for now.
The UAE will start implementing a value added tax (VAT) rate of five per cent from January 1 2018, but the introduction of other alternate revenue measures including corporate and income taxes are not under consideration for the time being, according to Minister of State for Financial Affairs Obaid Humaid Al Tayer.
Speaking to reporters after a joint press conference with Christine Lagarde, Managing Director of the IMF in Dubai, Al Tayer said 100 food items, health, education, bicycles and social services would be exempt from VAT. He said GCC countries are working on a framework now, which he expects to be agreed upon and made public in June of this year. GCC countries have agreed they will introduce VAT at a rate of five per cent in 2018. “Once the framework agreement on implementation of VAT is reached, GCC countries have time from January 1, 2018 to January 1, 2019 to implement VAT,” said Al Tayer.
The minister said each country has the flexibility to introduce VAT within this time frame. “A lot of ground work needs to be done before implementing VAT. The private sector will need time to prepare for complying with tax rules that is the reason we are giving enough time for all,” said Al Tayer. Younis Al Khouri, undersecretary to the UAE’s Ministry of Finance, has said that an estimated Dh12 billion would be generated by the VAT tax in the first year.
Analysts pointed out that although there are concerns that the introduction of VAT in the UAE may escalate the cost of living and doing business in the country, the impact of such a low rate of five per cent could be negligible, especially if the essential food items are exempted. Addressing the media, the IMF chief underlined the need for VAT and potentially corporate tax in the region’s new economic reality of low oil prices and decreased government revenues.
According to her, even a single-digit VAT rate could generate revenues in the range of two per cent of GDP. She said the UAE, with previous efforts towards diversification and good capital buffers, was well-placed to build a careful tax system. Lagarde commended the UAE authorities for having built large fiscal and external buffers, advancing economic diversification and taking step to address the consequences of the sharp drop in oil prices, notably the reform of fuel subsidies.
The IMF chief stressed the importance of pursuing gradual fiscal consolidation by raising non-oil revenues and fully phasing out energy subsidies as well as the need to safeguard financial stability and to continue implementing growth-enhancing reforms.
“I also stress the importance of revenue mobilisation and global cooperation on taxation, including by expanding scope and coverage of measures to address tax base erosion and profit shifting by international corporations,” she said.