VAT to 'raise standards of living'

NEW ERA: The UAE will introduce VAT some time in the next year, with all GCC countries implementing the system within five years. (Getty Images)

Dubai Customs said on Saturday the introduction of a value added tax (VAT) system in the UAE and wider GCC would strengthen the economy and raise standards of living across the region.

Comments by an International Monetary Fund (IMF) official predicting VAT would increase inflation by 2% contradicted an IMF report which encouraged speedy implementation of the system to boost the economy, an official said, reported state news agency Wam.

A statement by Mohsin Khan was “based on personal speculation”, and did “not reflect the report’s advice”, said Abdulrahman Al-Saleh, an executive director at Dubai Customs.

Khan, director of the IMF’s Middle East and Central Asia department, said recently that “implementing VAT now is overwhelmed by many problems, as the service-based economy needs some kind of multi-sources income.”

The IMF, however, presented the tax in a positive light, Al-Saleh said, quoting it as saying: “In all countries adopting the VAT, its impact on retail prices is a source of concern for the politicians and the public.

"The evidence, however, suggests that there is no reason to expect that VAT would be inflationary, although the VAT may have a one-time effect on the general price level and may lead to a change in relative prices.”

“It is well-known globally that implementing VAT in many countries has significantly contributed in boosting the economy’s sustainability, as VAT is considered the ideal tax for already strong economies,” Al-Saleh said.

“While UAE seeks to strengthen and diversify its economy, the country will not be an exceptional case in this regard.”

According to Dubai Customs, the UAE will introduce VAT some time in the next year, with all GCC countries implementing the system within five years.

RELATED: Entire GCC to impose VAT within five years

The tax, which will replace customs duties to be phased out under free trade agreements, is likely to be set at a flat rate of between 3% and 5% and would be applied to all goods and services.

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READERS' COMMENTS

VAT
Posted by Roger Woodward, DXB, UAE on Thursday 22 May 2008 at 17:12 UAE time


Please explain how increasing the taxes helps any body. We are already paying: 5% municpality tax, Road tolls, PetrolTax (although it is not called TAX) Hotel tax, restaurant tax, house taxes (when we purchase). If all these taxes are removed then I agree we will live better with a VAT.

VAT will incraese standard of living?
Posted by Arash Amai, Abu Dhabi, UAE on Monday 19 May 2008 at 16:43 UAE time


The only thing that VAT will increase is inflation. The experience in Australia was that businesses used the opportunity to increase prices despite the fact that VAT was meant to be a replacement for sales tax. Additionally, it will definatelly increase prices on local produce which is not now subject to customs duties.
Additional cost will also come by way of compliance cost for businesses which will be passed onto the customer.

Reply to Sammy
Posted by J., Dubai on Monday 19 May 2008 at 16:16 UAE time


Sammy,

Let me enlighten you. People are here because of the tax-free salaries, it's not rocket science. If I want to pay income tax I will move back home where I have great healthcare and rights as a citizen. There is only one reason why expats come here, don't forget that. Mark my words: income tax means expat exodus.

Vision....
Posted by Rory Campbell, Dubai, UAE on Monday 19 May 2008 at 10:33 UAE time

This is too much too soon, & will drive away not those who do have a comfortable living despite the whinging, but those who are truly building this country, delivering the outstanding services that we do not get anywhere else!

Those of us who wish to enjoy our evenings in a certain way, and eat certain foods accept the hidden taxes we pay, so many other things are better it's not an issue anyway.

But there are so many "workers" in the community, and what should be remembered is they're the vast majority, that less cash will be spent, many will leave, services will become poor and slow, and buildings will be further delayed, penalties increased, in total the vision will stall and the jewel will lose it's luster.

Don't kill the dream too soon, your in aggressive growth mode, attract more quality, grease the rails, smooth the way, keep it real because you do not have the numbers at home to finish what you've started.

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