Gulf states plan up to 5% VAT by next year

By Saifur Rahman, Staff Reporter


Dubai: The Gulf countries are considering up to five per cent value-added tax (VAT) that, according to a senior government official, will replace the five per cent customs duty currently charged on imports, following the implementation of the free trade agreements with major trading partners.

VAT is likely to be introduced across the Gulf Cooperation Council (GCC) countries by late next year, pending policy frameworks and legislation, prescribed by the International Monetary Fund (IMF), which is advising the various customs authorities through the GCC Secretariat.

"The intention behind introducing the VAT is to compensate the loss of the five per cent customs duty and will not exceed five per cent once the free trade agreements (FTAs) are in place with our major trading partners," Abdul Rahman Al Saleh, Dubai Customs executive director for Business Support and Services, told Gulf News yesterday.

"Currently the country does not have a tax structure and we would like to start with a small tax structure base with limited number of items, leaving most others for gradual inclusion into the VAT structure."

Currently the GCC is negotiating with the European Union on an FTA and the UAE is closing in on FTAs with the US, China, India, Pakistan, Singapore and Australia.

"Once we sign up FTAs with all the major trading partners, we will have very little number of goods imported from other countries for the customs duty, virtually having to rely on the VAT as a revenue source," he said.

"Besides, currently goods produced within the GCC are all tax free. So once the VAT is introduced, the locally manufactured goods will be subjected to VAT and will be on par with the imported items."

He said the VAT rate, once implemented, could be changed depending on the governments' decision.

"However, there could be exemptions on certain essential items, which will be decided later at government level," he said.

"We are seeking the best international practices on the VAT structure, so that it could be redeemed at the airport if there is a government concession from time to time to promote retail sale."

The GCC states set up a unified customs union in 2003 with a five per cent import duty collected at the port of entry and later adjusted periodically upon cross-border transportation, as part of a planned monetary union to be created by 2010.

More than 80 per cent of the UAE’s trade is handled by Dubai’s three ports and Dubai Customs.

However, there is no control on the movement of goods across the seven emirates and it is not clear how the proceeds of the VAT will be distributed across the seven emirates’ exchequers.

He said the details on these issues will be worked out later.