VAT's to worry about?
By Muzaffar Rizvi
Published: Sun 20 Aug 2017, 8:00 PM
Last updated: Sun 27 Aug 2017, 2:40 PM
As the Federal Tax Authority has chalked out plans to start online registration of companies for value-added tax in mid-September, the UAE bluechip companies are ready to face the challenge of new consumption tax in January 2018.
Analysts and experts said the consumers are unlikely to face any major impact from 5 per cent standard VAT in January as the government has already exempted around 100 basic food items, housing rent, life insurance and some healthcare services from the new levy. Education and public transport services are also expected to be zero-rated VAT to keep the inflation in control, however the consumers will have to bear additional cost for non-essential food items, dinning out, vehicles buying and its insurance, among others.
The International Monetary Funds, in its latest report, also indicated that inflation in the UAE eased to 1.8 per cent last year from 4.1 per cent in 2015 chiefly due to declining rent. It further estimated that the inflation will average 2.9 per cent next year and 2.5 per cent in 2019 despite VAT implementation in the country.
David Stevens, VAT implementation leader at EY, said introduction of consumption tax forms a significant shift in the UAR's fiscal policy and wider GCC region.
"The UAE VAT base is quite broad by global standards. It has a low rate but a broader base than you see in most jurisdictions, especially when compared to Europe," Stevens told Khaleej Times.
The UAE is most diversified economy in the region as oil only contributes 25 per cent to the country's gross domestic product compared to 46 per cent of other GCC countries. Initially, about 350,000 companies are expected to register under the new tax regime in the UAE and will help diversify revenue sources to cut dependence on oil falling from a high of $113 per barrel in June 2014 to less than $50 today.
Shailesh Dash, chief executive officer of Al Masah Capital Management, most of the UAE businesses will be ready to implement 5 per cent VAT in January.
"In my opinion all medium and large business entities are prepared or are getting ready for VAT in Jan 2018. The challenge would be with the small businesses, SMEs which are a significant portion of the market, how they are going to adapt and how fast," Dash told Khaleej Times.
The bold initiative is expected to generate Dh12 billion in first year of implementation in 2018 and Dh20 billion in the second year, paving the way for sustained development in the country. The 5 per cent standard VAT rate will be lowest in the region compared to as high as 14 per cent in Egypt and 18 per cent in Turkey.