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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