The UAE’s collection of value-added tax exceeded original estimates, according to a report from Moody’s credit rating agency.
“The government’s 2018 and 2019 VAT revenue forecasts had included conservative assumptions regarding the level of compliance in the initial years of implementation,” Moody’s analyst Thaddeus Best said in the report.
“Nonetheless, the robust level of compliance in the first year of the tax framework is a positive reinforcement of the UAE’s high institutional strength,” he added.
According to government data, VAT collections totalled AED 27 billion ($7.4 billion) in 2018, compared to an anticipated AED 12 billion ($3.3 billion).
The amount was also higher than the government’s projection for this year of AED 20 billion ($5.5 billion).
Moody’s noted that the UAE’s federal government will retain 30 percent – AED 8.1 billion – with the remaining AED 18.9 billion divided among the UAE’s seven emirates.
The Moody’s report noted that the largest beneficiary of VAT was Dubai, which it estimated received approximately a 60 percent share of the revenue attributed to the emirates and 42 percent of total revenue.
“The additional VAT receipts should help offset some of the losses to government revenues from the reduction in service fees that the government of Dubai recently implemented as part of its efforts to stimulate the economy in the face of decelerating non-oil real GDP growth,” the report noted.
Additionally, the federal government’s share of VAT revenues is equivalent to slightly less than 50 percent of the $19 billion in direct budget grants it receives from Abu Dhabi and Dubai.
The VAT revenues – which were bolstered by strong compliance – are likely to be the second most significant source of non-grant revenues for the government in 2019, following the combined royalties and dividend’s from the government’s holdings in the telecommunications sector.
“Given this high level of compliance in the first year and our expectation for non-oil growth to remain subdued, we do not expect a significant increase in VAT collections in 2019,” Best said in the report. “It will nevertheless be higher than currently budgeted.”
“Meanwhile, implementation of the VAT had a small and short-lived impact on inflation,” he added.
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