Gulf states gear up for introduction of VAT

Two Gulf states are gearing up for the introduction of a value added tax to bolster local economies as they attempt to break free from the reliance on oil.

The United Arab Emirates is planning to introduce VAT in the first quarter of 2009 but a final decision on the timing has yet to be made, a senior customs official said on Monday.

"We will be the one to launch it first," Abdul Rahman Al Saleh, Dubai Customs' executive director, told Reuters. "We were planning for the last quarter of 2008 but we have put it back to the first quarter of 2009."

Al Saleh said the UAE tax would be "between two and five per cent" and would help compensate for revenue lost when the customs duty is scrapped, upon introduction of the VAT.

"VAT is the best tax system for strengthening the economy of the UAE," he said.

The tax will be imposed on consumer goods and services.

Al Saleh said that any inflation caused by the VAT should be less than a "diminishable half a per cent."

Inflation in the second-largest Arab economy hit a 19-year peak of 9.3 per cent in 2006 and probably accelerated to 10.9 per cent last year, according to a National Bank of Abu Dhabi estimate.

In April, the dollar-pegged country's economy minister said the UAE’s inflation target of five per cent this year would be "a miracle".

Al Saleh said that VAT could be introduced across the Gulf Arab region by 2012 but that such a move "depends on the situation and the economy and the way they do things."

OMAN TO CUT RELIANCE ON OIL

Oman is planning to introduce a value added tax (VAT) as part of a government drive to cut its reliance on oil and could bring in the measure as early as next year, a government official said on Monday.

The government relies on oil for about 70 per cent of its income. The maximum VAT rate would be 5 per cent and apply to "general goods", except in health, said the official, without being more specific.

The rate is capped "in consideration of prevailing inflation," the official told Reuters on the sidelines of a conference in the Omani capital, Muscat.

Annual inflation in Oman accelerated to 11.56 per cent in March from 11.11 per cent in February, its highest level in at least 18 years, government data showed this month.

"VAT is definitely happening in Oman and we are sounding out all our clients to prepare for it," Michael Armstrong, managing partner of KPMG, told Reuters.

Follow Emirates 24|7 on Google News.