By Staff writer
UAE gov't has reportedly finished drafting plans to bring in VAT with higher rate for luxury goods, alcohol and tobacco
The UAE Government has finishing drafting plans to introduce a federal sales tax, better known as value-added tax (VAT), according to reports published on Thursday.
Al Ittihad, the Arabic-language sister paper of The National, said VAT would be levied at a higher rate on luxury goods, alcohol and tobacco while basic goods and essentials would be exempt.
Last month, Younis Haji al-Khouri, under-secretary at the ministry, said the UAE, seeking to bolster state revenues, was likely to complete the drafting of laws introducing VAT in the third quarter of this year.
Al Ittihad said the government did not specify what the tax rate would be, but the IMF has recommended that the UAE set VAT at about 5 percent.
It is not known when or how the government would introduce VAT. Companies and consumers would be given up to two years to adjust to the new tax rules.
The government also plans to introduce a corporation tax, Al Ittihad reported, but did not provide details.
Introducing corporate tax and VAT in the UAE, which has promoted its low-tax environment to investors, would be a major shift in policy, and politically sensitive.
Reports suggested it will to be some time before the proposals become law.
Earlier this month, the IMFrecommended the UAE implement a special excise on cars and broaden the corporate income tax, as well as push ahead with the planned tax on consumer goods, to help counter oil revenue losses.
The organisation has told the country’s economists the taxes could generate an additional 7.4 percent of non-hydrocarbon domestic product, replacing some of the $42 billion the UAE is expected to loss from oil export revenues this year, compared to 2014.
Have these calculations of expected additional revenue taken into account the number of people who will be forced to leave the UAE as they will no longer be able to afford the cost of living with yet another hike in prices?
I'm wondering if perhaps the retailers of luxury goods are the ones who will be bear the brunt of this new tax. As more and more people cut their spending on these types of goods, profit margins will narrow. Especially that the drop in many international currencies has curbed the spending spree of tourists coming from Russia, Europe and also China (but to a much lesser extent).
I doubt that expats will leave just because of VAT on luxury goods. What will happen is that we will witness less consumer spending which, in general, is never good for the economy. While consumer spending is not a major constituent of GCC's economies, however, it is significant to Dubai's.....
leave and go where? To countries with income tax aswell as VAT? I don't think anyone is going any where
i agree with you Mr. Billy...if this law will be implemented UAE is no longer for the people who wanted to find a brighter future for the family but instead UAE is for on the richest and richer people who can afford to leave for. i hope they would consider to take the pros for the middle income people like sales ladies and man, labourers, cleaners that they shared big part in booming the country.
Billy, what utter nonsense. 5% VAT on specific categories of non-essential goods is not going to see people scrambling over themselves to get to the airport. The UAE is one of the only countries in the world with no personal income tax at all - even with these additional proposed taxes people will still be FAR better off than in other parts of the world. Sure, the UAE is not a cheap place to live, but the cost of living is much higher in London, New York, Singapore, Hong Kong, Melbourne etc - plus you lose up to 50% of your income in taxes. Stop with this ill-informed scaremongering please.
MYFM...You appear to misunderstand the transit nature of Dubai. It relies on 'inflows' greater than 'out flows' to keep the model working. Think back to 2008/9, if you where here, and the people who left without the burden of Tax...then think a little bit more...
If I end up saving the same amount of money I do in Dubai than I do in my home country, then I would rather move to my home country. At least, my kids will get quality education for free, I will have a great health insurance and even a pension plan.
The government has to do what it has to do to maintain the lifestyle and benefits it offers all us blessed to stay in the UAE. I am sure they will do the right thing and overtime we will all see the benefit of this.
with regards to consumer spending, just like every other developed country, people will start living within their means.
Competition and promotions will increase and might lead to reduction in overall cost of living.
There seems to be MANY, ill informed people on this site. "Wake up and smell the coffee"! 5% VAT (On luxury items only) is nothing and will only generate money from the more wealthy in society. The only way the UAE can provide so much to their citizens and expat residents alike for free is down to vast sums of money earned from Oil revenue. Seeing thats nearly run out, any sane person would have been expecting this quite some time ago.
5% VAT, I am not having that! I will move back home, get paid less salary, pay income tax on that and pay 20% VAT on everything!
for those cities, the residents gets many social benefits in return, whereas here there is absolutely no social safety net.
I have been here for 11 years, and did good, but have seen recently many of my friends who has been staying here for over decade now leaving their jobs and migrating to their homeland or to other countries.
And the reason ? - they are willing to pay the high income tax and enjoy the benefits than live with the all time uncertainties of loosing job and finding no social safety net.