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28 February 2024

Inflation may delay VAT introduction

By Nadim Kawach


Plans to introduce value added tax (VAT) in the GCC could be delayed by surging inflation in the six member states, says a senior UAE customs official.

And the proposed five per cent VAT will not replace another five per cent tax levied by the GCC countries customs tariffs. These were imposed on imported products as part of the customs union that was launched five years ago.

“VAT will not be an alternative to the present customs tariffs, which exempt many items and all products manufactured
in the GCC,” said Said bin Khalifa Al Mirri, Deputy Director-General of the UAE Federal Customs Authority.

“These products will be subject to VAT when it is introduced.

“The main reason for introducing VAT is that the GCC countries are entering into free trade agreements with other states, which want such taxes to be enforced.

“But the question now is how VAT will affect our economies, especially at this stage when all GCC nations are suffering from rising inflation. For this reason I don’t expect VAT to be enforced this year.”

The GCC states – the UAE, Saudi Arabia, Bahrain, Qatar, Kuwait and Oman – are planning to impose VAT in line with their 2003 customs union and the common market that was launched early this year.

Committees have been created to draw up the necessary frameworks and legislation in co-operation with the International Monetary Fund (IMF), which is advising local customs authorities through the GCC secretariat. The UAE Ministry of Finance has been given the task of preparing a draft VAT law.

“A tax of this kind requres a huge administrative system to manage and control it, whether in the UAE or in the other GCC states,” Al Mirri told the Qatari Al Sharq Arabic language daily.

But Al Mirri said most of the obstacles that have blocked the signing of a GCC agreement on sharing customs revenues had been removed.