No Value-Added Tax in UAE before 2010

Robert Hamilton
For Al-Shorfa.com
2008-08-29

An Emirati man reads the front of a can of powdered milk in a supermarket in Dubai on July 19. (Photo by AZIZ SHAH/AFP/Getty Images)

A government official has said that the United Arab Emirates will not introduce a value-added tax (VAT) until 2010 at the earliest, refuting media reports that it would be implemented at the beginning of 2009.

Saeed Khalifa Saeed Al Merri, Deputy Director-General of the United Arab Emirates Federal Customs Authority, told reporters on August 17 that replacing import tariffs with VAT would involve the implementation of a “huge infrastructure” and may not be possible without simultaneous adoption across the entire Gulf Cooperation Council (GCC).

“If we reach the point where it might come into effect, that means we have to study all the procedures, because it will affect the customs union and it will affect even the whole customs work in the U.A.E.,” said Al Merri, according to agency reports.

In May, a senior customs official said that VAT would be introduced as early as January 2009. “We will be the one to launch it first,” Abdul Rahman Al Saleh, Executive Director of Business Support Services at Dubai Customs, told newswire Reuters. “We were planning for the last quarter of 2008, but we have put it back to the first quarter of 2009.”

In June, however, the U.A.E. Minister of Economy Sultan bin Saeed Al Mansouri sent a memo to the Minister of State for Financial and Industrial Affairs Obaid Humaid Al-Tayer raising concerns over plans to introduce the new tax.

Al Mansouri cautioned that the introduction of VAT on products imported from other GCC states could conflict with pre-existing customs agreements. He added that VAT would also contradict Federal Industrial Law No.1 of 1979, which exempts locally manufactured products from taxes.

According to previous government statements, the tax, which will replace customs duties to be phased out under free trade agreements, is likely to be set at a flat rate of between 3 percent and 5 percent and will be applied to all goods and services.

According to a statement released by Dubai Customs in May, businesses with revenues under $1 million [USD] will be exempt from the tax, and companies in the health and education sectors could also be exempt.

The International Monetary Fund has publicly spoken in favour of the VAT proposal. A report released in October 2007 discussing the details of the IMF’s Article IV Consultation with the UAE, states that IMF Directors “welcomed the preparations to introduce a Value Added Tax system at the federal level.”

Consumers across the GCC region — comprising Saudi Arabia, Kuwait, Qatar, Oman, Bahrain and the UAE — are suffering from record inflation, which has soared over 11 percent in some of the Gulf Arab states. Adding to their worries are reports of the possible VAT, as well as a 100 percent tax on luxury goods and harmful items.

In August 2008, Arabian Business.com reported that the GCC is looking into introducing a 100 percent tax on luxury goods including private planes, sports cars and yachts and “harmful items” including cigarettes. While the luxury tax would likely only affect very wealthy consumers, a 100 percent tax on cigarettes would impact millions of consumers.

Abdul-Aziz al-Uwaisheg, head of studies and economic integration at the GCC, told Arabic daily Al-Watan in May that the body had commissioned a team to list items that could be liable for the new tax, which could come into force in 2012. The team is expected to meet in October. Al-Watan also reported that 2012 is the target for imposing a VAT throughout the GCC.

Bookmarking

Please comment on this article so that we can improve the experience of viewing this website.