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Mon 10 Aug 2015 11:46 AM

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UAE should introduce VAT, tax on cars, says IMF

International Monetary Fund claims the emirates should introduce a tax on consumer goods, a special excise on cars & broaden the corporate income tax

UAE should introduce VAT, tax on cars, says IMF

The International Monetary Fund (IMF) has recommended 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.

The IMF has recommended a 15 percent special excise on cars and extending the existing 10 percent corporate income tax to more companies.

UAE authorities told the IMF discussions were ongoing with other GCC states to introduce a coordinated VAT, but the timeline was unclear.

They also said an impact study would be needed before any broadening of the corporate income tax could be considered.

The UAE has been a mostly tax-free country, with only some municipality charges and a 20 percent tax on foreign banks, making it highly attractive to expatriates, on whom it relies for most jobs.

However, it has moved towards implementing small taxes in the past two years, including tolls on Sheikh Zayed Road, a tourism tax on hotel bookings and a recently announced fee to help fund innovation in the country.

Earlier this month, the subsidy on diesel was cut by 24 percent.

Any new taxes, particularly on consumers, would likely lower the country’s appeal to expatriates, although citizens are likely to be spared with cash payments or other benefits to outweigh increasing costs.

Lower revenues from oil, which accounts for about 90 percent of the country’s income, since June 2014, have forced it to reconsider its revenue streams.

The IMF also recommended the public sector wage bill be controlled by tying any salary increases to productivity gains and to remove energy and water subsidies, while lowering other expenses, including on capital projects.

Authorities also needed to further strengthening annual budget processes and debt management frameworks.

However, the IMF said the UAE’s outlook remained positive. 

“Lower oil prices are eroding long-standing fiscal and external surpluses, but the UAE has continued to benefit from its perceived safe haven status and large fiscal and external buffers that have helped limit negative spill overs from lower oil prices, sluggish global growth, and volatility in emerging market economies,” the IMF report, published this month, says.

“The economic outlook is expected to moderate amid lower oil prices. Non-oil growth is projected to slow to 3.4 percent in 2015, before increasing to 4.6 percent by 2020, supported by the implementation of megaprojects and private investment in the run-up to Expo 2020.”

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Bob 4 years ago

The introduction of VAT within the region will be the final nail in the coffin of increased living costs for most expats. Why stay here and pay tax when you can go home and do that in your home country?

I know people will say - go home then nobody is forcing you to say - and that is true; however it will have a detrimental affect on the country and region as a whole.

Its becoming more and more expensive to remain here, and salaries are not increasing to cover the increased costs. The market needs to adjust in other areas, such as retail, and not just in property (although more adjustment is needed there to become realistically valued) to remain a work destination of choice for expats.

Time to wait and see....

leo50 4 years ago

Just what is needed! The IMF have done such a wonderful job around the world with their management of global financial affairs; (Greece? etc.,) Why shouldn't they stick their greedy fingers into others business?

Alfred 4 years ago

Qatar, KSA, Oman, Kuwait all have corporate taxes. Although in some instances as Zakat....

umas 4 years ago

Exactly. Totally agree with this view. Moreover decrease in rent is only in news and not applied in real scenario

Tabbara 4 years ago

Don't mind the 5% vat, but I do mind the 5% housing fee that only targets a segment of the population without knowing for what?! Remove that and any other "hidden taxes" put in place over the years.
Regarding the car tax, only tax the second car a person or family buys or it should be proportional to the size/cylinders.
Income tax should never even be considered!
Corporate tax would be a challenge, but if it is also just like 5-10% across the board, would make sense.

Richard 4 years ago

Taxes without representation, social security, pension or citizenship.

Dubai is starting to look less attractive for an expat.

The man from Mirdiff 4 years ago

The only way cost of living will decrease EVER in the UAE is when there is a correction in the market in general terms or recession if you want to call it for what it is. Then ultimatly there will be less people living here, less cars on the road, less plonkers and rents will adjust accordingly as will rents in malls and then costs of goods. For a lot of the residents living here from regional countries with wars and instability there isn't too many other options so they will stay but westerners will depart

shivk 4 years ago

School fees (big burden and keeps increasing), Housing rents (bigger burden), Petrol (25% increase) and now.. proposed taxes!

Its a beautiful place, with excellent facilities.. but needs to cater to a wider middle class.

Lone Star 4 years ago

Tax-free becomes only a useful slogan for corporations who do not pay anything in the tax category of their balance sheet.

For the normal person in Dubai, he has to pay for the housing fee, rent, schooling, salik, deregulated gasoline, radars, utility bills, etisalat/du bills and visa fees. After paying for all of this, he needs to alleviate the stress of everyday life by going to the mall and buy from the standardized and high-priced offerings which I have watched decline in quality while rising in price over the years. Some are fortunate enough to afford to go to a hotel for the holiday and spend more there.

I am sure the IMF does not care about the happiness of the UAE citizens/residents. Let the IMF say what they will and then see Greece.

Arnab 4 years ago

I wonder how lucrative it will be for people to move here once taxes are introduced and the phrase "tax-free income" is removed from vacancy ads targeting expatriate recruitment.