Dubai Customs backs 3% VAT

OFFICIAL RECOMMENDATION: Dubai Customs has backed VAT being introduced at 3% in its submission to the federal government. (Getty Images)

Value added tax (VAT) will be introduced at 3% across the UAE if recommendations from Dubai Customs are taken up by federal lawmakers currently drafting legislation for the tax's implementation early next year.

Dubai Customs Director-General Ahmad Butti Ahmad said on Sunday at a press briefing that the authority's official recommendation was for VAT to come in at 3% - at the bottom of the 3-5% scale regularly quoted by officials.

However, Ahmad said the final decision on what level the tax would be introduced lay with the federal government.

If the government introduces VAT at 3% then there will be minimal impact on consumers as 3% VAT would be equal to the 5% customs duties in terms of the cost to consumers, a source with knowledge of the situation told ArabianBusiness.com.

However, if the government levied VAT at the higher end of the 3-5% scale then consumers could get stung in the wallet, the source said.

VAT will be imposed on consumer goods and services and will replace customs duties, which are being phased out as the UAE looks to finalise free trade agreements (FTAs) with economic powers including the US and EU.

The source said healthcare and education would "definitely" be except from VAT, while the tax threshold would be sufficiently high that small businesses, "mom and pop shops", would be exempt.

Dubai Customs has previously said small businesses with revenues under $1 million and companies within the health and education sectors could be exempt.

However, Dubai Customs officials said on Sunday these details, along with exactly when the tax would be introduced, were yet to be finalised at the federal level.

Dubai Customs Executive Director Abdul Rahman Al Saleh said last month that the UAE was planning to introduce VAT in the first quarter of 2009.

The source confirmed that VAT should be introduced early next year, without being more specific.

However, the source said the "big issue" surrounding when VAT would be introduced was the pan-GCC rollout of tax.

Agreement was required among GCC member states to ensure there would be no cross border VAT, the source said, adding that this was expected early next year, after which the UAE could roll out VAT.

Al Saleh said last month that all GCC countries would have VAT within five years.

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3% Now - 20% Later
Posted by Louie Tedesco, Dubai, UAE on Wednesday 4 June 2008 at 10:21 UAE time


Introduction of VAT is viewed by authorities as a boon to the development of the country by replacing the 5% import duty, which was raised in January 2003 from 4%. Writing from experience after residing in countries where VAT has been common since the 1950's, we can predict with certainty that the VAT taxation level will not remain at 3% for very long. Once VAT is implemented, the Pandora's Box of ever-increasing VAT will be open and it can never again be closed as government budgets will be tailored to rely on the income produced by VAT intake. The end result will never be a constantly held VAT rate but percentile increases to VAT occurring every few years.

A review of increases in VAT around the world will reveal the true burden for the population here and for future generations. VAT levels in many countries in Europe often exceed 20%, the people there were also weaned on the acceptance of a low VAT rate when it was introduced at far below 10% at the time of implementation. Once VAT is implemented, it historically has always resulted in significant increase over time. The local population here had better get used to this as there is no way back. In the short time span of my own lifetime the VAT in my home country has increased from 9% to 20%. Young 'uns here, get ready for that.

For the transient population of this region, we really won't be affected by a 3% VAT, many of us are from regions where tax rates were higher and we are only staying here for some years. For some of us, there will be a reduction in tax because the existing 5% import duty fee will be dropped and our personal packages, shipments and imports from abroad would be exempt from the VAT tax as they were not purchased here. Empost parcels which presently attract handling and Customs fees would in future be exempt because the items are not purchased from local merchants where they would be subject to VAT. Of course, I'm sure that this tax loophole will be plugged so that revenue can continue to be generated by Empost and others.

VAT & Inflation
Posted by Iqbal, Dubai, UAE on Tuesday 3 June 2008 at 11:05 UAE time


As per "Experts" depegging Dirham will not lower inflation, Salik will not increase inflation, and now VAT will not stoke inflation!!!
What exactly is causing this double digit inflation? Are people just imagining rising costs?? Is it a case of mass hysteria??

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