UAE forecast to see biggest fiscal uplift in GCC from VAT

Introduction of value-added tax will have marginal impact on consumers, says BMI report

The UAE will see the most positive effect of all GCC states from the introduction of value-added tax (VAT) in 2018, according to a report.

The UAE has a much larger consumer base to its economy and is heavily reliant on retail spending, particularly from overseas visitors.

As a result, it is expected to raise 2.1 percent of GDP from the tax, compared to 1.1 percent in Qatar and 2 percent in Kuwait, BMI research said, citing figures from the International Monetary Fund (IMF).

The report noted that Dubai and Abu Dhabi typically attract wealthy visitors, so the impact of the 5 percent VAT on goods and services from 2018 is expected to have a negligible impact on them.

What is more, given the range of exemptions proposed alongside its implementation, most notably for food items, the impact on low-income consumers (of which there is a higher number in Saudi Arabia, Bahrain and Oman than there is in the UAE), the overall impact on consumers will be minimal.

BMI’s report also predicts a minimal inflationary impact from the introduction of VAT across the Gulf.

“Firstly, the 5 percent introduction is small and the array of exemptions means it will hardly affect the major components of each country’s consumer price index basket, most notably food and beverages,” the report said.

“Secondly, while economic growth is picking up (which would result in demand-pull inflation) we are still expecting real GDP growth to remain subdued by historical standards.”

Finally, BMI said its expectation for a continued strong US dollar and interest rate hikes by the Federal Reserve and GCC central banks would keep inflation in check.

The amount of revenue raised and the costs to growth will vary slightly across the GCC, the report said. “But given our expectation for continued fiscal deficits, it is likely that the rate will be raised over the coming years.”

Join the Discussion

Disclaimer:The view expressed here by our readers are not necessarily shared by Arabian Business, its employees, sponsors or its advertisers.

NOTE: Comments posted on may be printed in the magazine Arabian Business

Please post responsibly. Commenter Rules

  • No comments yet, be the first!

All comments are subject to approval before appearing

Further reading

Features & Analysis
Saudi Arabia spends money to make money

Saudi Arabia spends money to make money

Tour of Asia by Saudi Arabia's King Salman advances drive to...

Soft money: will cash transactions soon be a thing of the past?

Soft money: will cash transactions soon be a thing of the past?

The rapid digitisation of banking in the UAE is enabling robots...

Oman gains breathing space with jumbo $5bn bond sale

Oman gains breathing space with jumbo $5bn bond sale

Order books for the issue totalled $20bn, showing that Oman can...

Most Discussed