VAT to be introduced in UAE in 2018 @ 3-5%: Official

Taxing workers’ remittances is a state issue and not a GCC-wide issue

A senior official at the UAE’s Ministry of Finance (MoF) has confirmed that Value-Added Tax (VAT) will be introduced across the UAE and the GCC in 2018.

Younis Haji Al Khoori, Undersecretary at the MoF, said that the GCC countries have agreed to unify their tax policies before the introduction of the VAT.

Al Khoori reckoned that the UAE stands to earn estimated VAT revenues of between Dh10 billion and Dh12 billion in the first year of its application. He reiterated that this amount is after exempting sectors such as healthcare and education in addition to several food items of the new tax.

Al Khoori made these comments at the sidelines of the first meeting of the Under-Secretaries of the Arab Ministries of Finance, organised by the UAE MoF in cooperation with the Arab Monetary Fund.

He affirmed that committees and taskforces had been formed to study the anticipated socio-economic impact of the imposition of VAT and the proposed percentages. He noted that such committees have suggested a VAT rate of between 3 and 5 per cent for the various sectors, with the exception of healthcare, education and 94 food items on which there will be no VAT.

The UAE Undersecretary ruled out any disagreements among the GCC countries on other sectors that are subject to VAT, stressing that there was complete agreement and added that each country would need to put in place a domestic tax laws structure before the GCC-wide implementation of VAT.

He noted that, in the UAE, the tax law is in preparation stage and that the draft law has been approved by local authorities. The draft law has been sent to the Technical Committee for Legislation at the Ministry of Justice, he added. 

“The VAT can be introduced once any two of the GCC countries are ready with their tax laws and present the same to the GCC Secretariat,” Al Khoori said.

However, he noted that the UAE needed two years for the adoption of the law, and therefore he sees VAT being implemented in 2018.

In an interview with the Economist magazine published last week, Saudi Deputy Crown Prince, Mohammed bin Salman bin Abdulaziz, Second Deputy Prime Minister and Minister of Defence, confirmed that Saudi Arabia was gearing up for the introduction of VAT but ruled out the imposition of any income tax in the country. 

“There are going to be no income taxes, and no wealth taxes,” he said. “We’re talking about taxes or fees that are supported by the citizen, including the VAT and the sin tax,” Prince Mohammed bin Salman said. 

Remittance tax

The UAE MoF Undersecretary noted that the issue regarding taxing workers’ remittances is a state issue and not a GCC-wide issue, with each country having the right to define the appropriate tax policy regarding a tax on remittances.

He added that the UAE is still considering a corporate tax. He pointed out that taxes are imposed by most countries in the world, barring a few such as the Gulf countries.

Oil prices 

Regarding the impact of falling oil prices on the UAE’s finances, Al Khoori emphasised that the UAE is accustomed to fluctuations in oil prices right from the 1970s until 2008.

He added that the UAE government follows a policy of economic diversification and does not rely on any one source of income, adding that the contribution of oil revenues has already shrunk from about 90 per cent of GDP to much low rates, ruling out any concerns of the real estate sector being affected by a decline in oil prices. 

Al Khoori said the UAE last year succeeded in fuel price liberalisation in addition to reducing subsidies for electricity and water without any difficulties. 

He asserted that the fuel price deregulation leaves ample scope for the development of clean energy projects and ensure a better life for future generations. 

(Image via Shutterstock)

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