Dubai studies steps to introduce VAT

By Saifur Rahman, Staff Reporter


Dubai: Dubai has taken the first among many future steps to implement value added tax (VAT), part of a GCC-wide initiative, according to Dubai Customs.

Dubai Customs and the International Monetary Fund (IMF), in coordination with the UAE Ministry of Finance, are conducting a study to identify ways and means to facilitate smooth implementation of a VAT regime in GCC states.

The move, aimed at diversifying GCC countries' revenue stream and reduce dependency on oil, comes at the right time for Dubai.

Oil represents about six per cent of Dubai's Dh136 billion GDP. No timeframe has been given for what could be termed the first form of taxation in a largely tax-free region.

However, analysts say that VAT should come as part of a comprehensive package including social security and other benefits for all residents, while cautioning that it will further fuel inflation.

VAT unlikely for at least two years
Thursday, 16 February 2006
7DAYS

Value Added Tax is unlikely to be introduced in the UAE until at least 2008, said a senior member of the team managing the process yesterday.

“Once the free trade agreements have been negotiated, there is often a grace period of a couple of years before they are implemented,” said Abdul Rahman Al Saleh, executive director of Dubai Customs to 7DAYS yesterday.

“The GCC agreement with the EU will not be agreed until this summer; the deal with the US later, so at least two years from then,” said Al Saleh. The creation of any law introducing VAT is likely to take some time, in itself.

The next step in the process of implementing VAT is sending the findings from the study being carried out by Dubai Customs and the IMF to the GCC ministerial committee, before being turned into legislation and passed onto the GCC annual summit for ratification.

If the GCC chooses not to adopt VAT, the UAE can go ahead alone in adopting the tax, said Al Saleh. Al Saleh would not be drawn on the possible level of VAT once it is introduced, saying that it was too early.

However, “the level will be less than current customs duty,” he said. “The intention is to compensate for any loss from customs revenues, not to make extra,” he said.

Concerns over any inflation due to the introducion of VAT, are unwarranted, insisted Al Saleh, saying that the government was very aware of the effect of any new tax, and has it as a top priority that prices in the UAE should stay in check. The UAE government is working with the IMF to develop the tax.