VAT Threshold May be Set At Dh3.5m

The precise levels at which VAT is levied will be ultimately determined by GCC Heads of State after consultation and an assessment of the impact on economies.

Speaking at the conference, ‘Preparing for the VAT in the UAE and the GCC’, organised by Dubai Economic Council, Dr Ehtisham Ahmad and Dr Giorgio Brosio said that the proposed threshold is appropriate in the case of Dubai and is well suited to the structural characteristics of the economy of Dubai. They added that at the proposed threshold, 55 per cent of taxpayers would be eliminated but only 3 to 4 per cent of VAT revenue would be lost (see table).

A Dh 3.5 million compulsory threshold would mean the exclusion of 70 per cent of schools, but only of 15 per cent of the turnover and for the healthcare sector the exclusion of 82 per cent of clinics and hospitals, but only 20 per cent of turnover. The conference discussed whether education or health should be subject to VAT and examined two alternatives. The first alternative included the provider fully in the VAT system where entities charge VAT on all supplies and can claim back VAT paid on their inputs.

The second alternative specified sector supplies are “input-taxed/exempt” from VAT and assumed no charging of VAT and no right to claim back VAT on inputs. The UAE is considering VAT to compensate for the lost revenues from customs duties resulting from the free trade agreements (FTA) the UAE is negotiating with other countries. This is estimated at 80 per cent post FTA.

The VAT rate is yet to be determined but is thought to be in the range of 3 to 5 per cent. Speaking to Khaleej Times, Shaikh Khaled bin Zayed Al Nahyan Executive Committee Chairman, Dubai Economic Council commented, “The debate up to now is on a low number, this is a replacement for the customs because of the free trade treaties are eliminating a lot of taxation that used to be levied on imported goods. The major benefit is that you have a taxation system that is fair and equal, secondly you will have a tool for affecting the economy if there is a boom or a recession – you have more tools to manage the economy”.

Commenting on the introduction of VAT the Secretary-General of the Dubai Economic Council, Hani Rashid Al Hamly added, “We need to know the lessons for the VAT exercise in other parts of the world – the pros and cons, are we going forward to have VAT introduced in 2009 which is the agreement with other GCC states. This is a question to be answered by the (GCC) governments”. Dismissing the possibility of the introduction of either corporate or personal taxes he added, “It is not on the government agenda not in the mid term or long term it is a very clear direction”. He added that Dubai Economic Council would be increasingly focusing on productivity in 2009, “We are looking at the competitiveness of Dubai to end up with a high value chain for doing business”.

mark_townsend@khaleejtimes.com