ABU DHABI // The introduction of value-added tax in the UAE next year, in tandem with the other five GCC countries, will boost government revenues that took a hit with falling oil prices.
VAT could generate Dh12 billion in its first year and Dh20bn in its second year, said Sultan Al Mansouri, Minister of Economy.
The international monetary fund (IMF) said introducing VAT at a low rate could generate between 1.5 to 2 per cent of GDP.
The Ministry of Finance plans to give businesses a grace period – yet to be decided – to deal with implementation of the law, said Saeed Al Yateem, assistant undersecretary of resources and budget sector at the ministry.
None of the six GCC countries have published VAT laws and there is no clear picture of the type of products and services that will be taxable.
The issue becomes more complicated because some sectors are expected to be exempt, while others, such as exports and international transport, will be zero-rated.
Businesses exempt from VAT will not be able to recover from the Government the tax incurred on the cost of an item or a service that is not exempt, and it will be up to the business to decide whether to pass on the VAT cost to the consumer.
But when businesses have zero-rated services and goods they can reclaim from the Government any VAT they have paid on costs.
Despite these complexities regarding what goods and services will be exempt or zero-rated, business figures have welcomed the introduction of the levy.
More than two-thirds of senior business figures in the UAE believe reforms such as cutting fuel subsidies and the introduction of duties such as VAT are necessary to boost development in the region.
Research conducted for The National by Borderless Access found that 69 per cent of respondents in the UAE and 66 per cent in Saudi Arabia felt that subsidy cuts and the introduction of VAT would help regional development.
The Ministry of Finance will this month launch the first phase of awareness sessions with regards to VAT and excise tax implementation for businesses, including small and medium-sized enterprises.
The sessions will take place in every emirate.