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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USER COMMENTS (16 COMMENTS)

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VAT
Posted by Roger Woodward, DXB, UAE on 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 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 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 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.

Groaning & moaning and finally accepting silently
Posted by ABUSIDRA, DUBAI, U.A.E. on 19 May 2008 at 09:40 UAE time


Groaning & moaning and finally accepting silently, this has become our way of life here. Take or leave it is the offer and we take it or there are others in the queue to take it, but no one wants to risk leaving it. This is due to lack of connection with God and relying on material things and factors & humans for all our needs & desires.

VAT
Posted by Fabian, Dubai on 19 May 2008 at 08:35 UAE time


..and now soon expect another 800-VATCARESFORYOU number which like the DEWA and SALIK and blah blah can only raise your blood pressure for u... totally enjoyed reading all the comments folks.

SHOW ALL COMMENTS

Improving??
Posted by Improving ??? on 19 May 2008 at 08:03 UAE time

When they imposed Salik, they said this will improve traffic. Just yesterday I was driving towards Garhoud bridge, and guess what, I stuck in the traffic. And here we go, VAT will improve standards of living .... what standards are we talking about? Services and goods will be more expensive .. if VAT get implemented, other type of taxes will be implemented which is serious issue for expats who did participate heavily in building GCC economies.

why VAT and other hidden taxes why not income tax
Posted by samy on 19 May 2008 at 00:27 UAE time

Instead of applying systems like vat and other hidden taxes why not remove all and apply income tax according to income gradually. I think this would be more fair, since some people salaries and income is so high and some get very low income so it 's not fair to apply taxes with the same value on all.

VAT will increase inflation and decrease sales more and more and the only thing working in Dubai is real estate .

VAT
Posted by Andrew, dubai, UAE on 18 May 2008 at 14:44 UAE time


Well this is the nail in the coffin for myself and many others, another increase in costs to add to the already double digit inflation rates, the leeches, sorry I mean landlords sucking everyone dry with their ever increasing greed. This extra tax along with all the other hidden or not so hidden taxes is beginning to drive away many who have worked hard over the years to help make Dubai is what it is today...
Dubai loses one more long term european resident with local knowledge, cultural sensitivity and spoken Arabic...

Taxing for a new generation
Posted by Mike Mechanic on 18 May 2008 at 10:44 UAE time


I totally understand it. All the other 'hidden taxes' may be insufficient to appease the ever increasing palate of executive salaries and perks. Let’s also not forget that now there’s a whole new generation to feed.

VAT
Posted by sandi, dubai, uae on 18 May 2008 at 10:22 UAE time


Raise whose standard of living? Just like DEWA and SALIK The end user bears the brunt. So again raise whose standard of living?

VAT is just a curse upon consumers
Posted by Eli Shavit, Israel on 18 May 2008 at 09:54 UAE time


Although implemented wqually on every citizen and on most goods, this tax raises the cost of products and cost of living. If it comes as substitute to other taxes ( sales taxes, for example) then what's the use anyway ?
One thing for sure -it never raises the standard of living !

huh?
Posted by langyaw, Dubai, UAE on 18 May 2008 at 09:34 UAE time


I thought they were still arguing if VAT was congruent to Islamic values or not? Have they made up their mind already?
Besides, VAT is a double-edged sword. Unfortunately, the edge that faces the workers/builders of this country is sharper than the other.
-- langyaw

Welcome to the 'advanced' economy
Posted by Michael Moro on 18 May 2008 at 09:04 UAE time


There can be no doubt that the UAE government is seeking to reducing its dependence on a few revenue sources, however high the oil barrel goes. While the VAT is being introduced to replace customs tariffs following FTAs, why is it that it will apply to everything, including rents and school fees? These weren't subjected to customs tariffs.
To say this won't be inflationary is farcical. Adding 5% to everything clearly will hike prices and add even more pressure to salaries, particularly small ones. Companies will have to reflect this in their own prices and salaries, previously (apparently) tax-free, will also probably have to be readjusted. And 5% is only the beginning. Most countries happily raise the rate to suit their needs.
If the UAE was once a tax-free country where people could enjoy the fruit of their work, in relative peace and quiet, happy in the knowledge that this place was a little slice of heaven, well it's no longer. Firmly driven by its desire to become a so-called advanced economy, the UAE is joining the ranks of countries where the rat race is seeing people struggling to make ends meet and resent every move their government makes.

Time for expats to leave
Posted by Muhammad, Abu Dhabi, UAE on 18 May 2008 at 08:32 UAE time


Well is this a typing error or is this what is wanted to be communicated.. because I thought that VAT raises the COST of living rather than the STANDARD of living.. perhaps the government can tell us how will the standard of living be raised.. utter non-sense.. when you have the barrel of oil hitting $128 and expecting to be $200 soon, why do the government need more money for? Rent is already hitting record prices and it seems that only government employees get increase in salaries..
If it continues on this trend, then expats need to think twice before staying here.. it just does not worth it any more..

whose standard???
Posted by Ralph, Dubai, UAE on 18 May 2008 at 07:08 UAE time

VAT to 'raise standards of living'??? whose standard exactly? why don't we just all transfer our monthly salaries to the government and be done with it...

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