VAT set to be a stable revenue source in GCC

dubai - The intentions of most governments when introducing a VAT is to focus more on taxing discretionary spend by consumers

Value added tax (VAT) will be a stable source of revenue for governments in Gulf countries with a minimum impact on the common man's life, said an industry specialist.

The UAE along with other Gulf countries will introduce VAT for the first time in January 2018 at a standard rate of five per cent.

"The impact of VAT is unlikely to do anything other than be a positive factor for governments. It will provide a stable source of revenue going forward, and one that is not significantly impacted by outside factors," Bruce Hamilton, director of indirect tax at Deloitte Middle East, told Khaleej Times on the sidelines of a one-day seminar on VAT.

It is a revenue source that can easily be amended to address changing economic circumstances, Hamilton said, adding that there should be very little impact on the common man as a result of the introduction of VAT.

He explained: "In fact, the whole reason for introducing VAT in many countries, as in the UAE, is to place the country in a more stable budgetary position so that it can support those in society that are most in need. It is very hard for any country to have a stable budget when one of the fundamentals, such as in oil in the GCC, is an uncertain or fluctuating source of revenue for the government."

The government is likely to use its ability to either zero-rate or exempt many supplies most likely to impact the common man to ensure that the impact of VAT is kept to a minimum.

Essentially, the intentions of most governments when introducing a VAT is to focus more on taxing discretionary spend by consumers, while ensuring that those at the lower end of the spectrum are protected and assisted.

He said it is possible that there would be a slight blip in inflation, but this is unlikely to affect products concerning those at the lower end of the spectrum.

He said the implementation of VAT is a business project and deserves the attention of the business world. "Businesses with the foresight to be successful are generally and rightly looking at the issue now and planning their approach to implementation," he added.

"The fact that the legislation is not out yet is not a barrier as VAT around the world is based on certain fundamentals that are well understood by practitioners. We are able to address a large proportion of the issues now, with a fringe of specific issues that will be applicable to each of the GCC countries as they become known," he said.

Responding to a question about the need for more tax practitioners, Hamilton said: "We will need a number of practitioners that understand not just VAT, but more particularly, the intricacies of the implementation process. For those businesses that do not act at an appropriate time, they will find resource constraints as there is a limit to the number of VAT specialists who have necessary skill sets."

- abdulbasit@khaleejtimes.com