VAT to drive up petrol and diesel prices in UAE

Since petrol and diesel is a business activity, they would be subject to VAT, said Girish Chand, director MCA Management Consultants.

Petrol prices will be subject to value-added tax (VAT) in the UAE from next year, according to experts.
Set to be implemented from January 1, 2018, the five per cent tax will be applicable to both petrol and diesel, said Thomas Vanhee, founding partner, Aurifer Middle East Tax.
He pointed out that some countries have different VAT rates for commercial and private vehicles, but the UAE has no such intention. So single rate will be applicable.
The President, His Highness Sheikh Khalifa bin Zayed Al Nahyan, on Sunday issued Federal Decree Law No 8 for value-added tax with one of the lowest rates in the world.
"The ministry of finance had said at workshops, inflation will go up by?1.4 per cent. The ministry websitesays inflation will go up slightly," Vanhee told Khaleej Times.
Since petrol and diesel is a business activity, they would be subject to VAT, said Girish Chand, director MCA Management Consultants. "However, considering the low VAT rate and the insignificant composition in the overall spending of an individual, VAT on petrol and diesel would have a negligible impact," Chand pointed out.
The International Monetary Fund said in a recent note inflation in the UAE is projected to reach 2.9 per cent next year from 2.2 per cent this year on the one-off impact from the VAT introduction but would stabilise at around 2.3 per cent over the medium term.
Chand explained that VAT rates are related to business activity, not end users, so there would not be different VAT rates for commercial and individual vehicles.
The UAE has aligned oil prices with international rates and they are adjusted every month by the Ministry of Energy.
For the month of August, the prices were revised upward by three fils with unleaded gasoline 98 at Dh1.89, unleaded gasoline 95 at Dh1.78 and unleaded gasoline 91 at Dh1.71; while diesel was increased by four fils to Dh1.88.
Based on this estimate, filling a 50-litre tank with unleaded gasoline 98 will today cost Dh94.5. Following the five per cent VAT implementation next year, the price will rise to Dh99.2. Similarly, the 2017 Land Cruiser 5.7 (EXR) with a 136-litre fuel tank capacity costs approximately Dh257 to fill unleaded 98 but following VAT, the consumer will have to shell out approximately Dh270.
waheedabbas@khaleejtimes.com