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Little impact from VAT: IMF

The UAE economy is expected to accelerate next year without suffering a significant blow to growth from the introduction of a 5 per cent value-added tax in January, a senior International Monetary Fund official said.
Natalia Tamirisa, IMF mission chief to the Arab world's second biggest economy, said Dubai's spending on preparations to host the Expo 2020 world's fair would help to boost growth.
On Sunday, Dubai announced a 19.5 per cent leap of spending in its 2018 state budget, largely because of higher allocations for infrastructure.
"We see a gradual recovery for the UAE over the next few years on the back of firming oil prices, a pick-up in global trade, investment for Expo 2020 and easing fiscal consolidation," Tamirisa said in a telephone interview on Monday.
Non-oil sector growth is projected to rise from 1.9 per cent this year to 2.8 per cent next year, and to continue climbing to between 3.3 and 3.5 per cent in 2020, she said.
The introduction of VAT next month will be a big change for consumers and companies, which have long been accustomed to minimal taxation in the Gulf.
Analysts believe some consumers may rush to make purchases this month to beat the tax, potentially setting the economy up for weakness early next year when the spending fades.
But Tamirisa said the effect was not likely to be large enough to hurt the economic recovery, and that the government looked set to manage the launch of the tax without disrupting business.
"After the initial adjustment we're expecting smooth operation of the system. The preparations by the government have been quite extensive."
The IMF's forecasts assume oil will average over $62 a barrel next year, based on futures prices, compared to an average of about $54 this year. This should help strengthen the UAE's finances in 2018 despite looser budgets, Tamirisa said.
The IMF expects the UAE's consolidated fiscal deficit, including the federal government and all seven emirates, to shrink to 1.3 per cent of gross domestic product next year and gradually disappear in subsequent years, from 2.2 per cent this year and 2.5 per cent in 2016.