The International Monetary Fund (IMF) has recommended an initial VAT rate of around 5%, for the UAE. This follows the country considering the introduction of VAT in tandem with its Gulf Cooperation Council (GCC).
Our policy advice is to continue to diversify revenue sources for the UAEsaid Zeine Zeidane, IMF Adviser for the Middle East and Central Asia department.
The IMF has also suggested that the UAE move forward with the introduction of corporate income tax “…so incorporating some tax applicable to all companies, not only foreigners but foreign and domestic companies with also a very low and flat tax.”
With the IMF backing and recommendations, along with the political situation, such changes are likely to go through. In recent times there has been a series of false dawns for VAT in the UAE, some of which the IMF have commented on.
For VAT in particular, however, any reforms will be shaped by discussions in the GCC about a harmonized system, across the six GCC nations – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.
Jeanine Daou, Partner and Regional Indirect Taxes Leader at PwC in Dubai said “I think the UAE VAT implementation relies very much on what’s going to happen at the GCC level. They are working on having the common framework at the GCC states level, and they are at the stage where they are almost there.”
The GCC has indicated that the main points of contention have been ironed out and that once a treaty is agreed upon, each GCC state will then be able to modify its own national legislation or, in the case of the UAE, implement.
While the six GCC nations might not agree on everything they acknowledge that it “will be necessary to have an effective and efficient VAT across the region”, and that it should be “as much as possible a harmonized system”, Daou said.
Daou, who has been following the developments for several years, believes the price of oil will be a key factor, which could help push the reform though as it is an important source of revenue in the GCC.
I think it is one of the drivers, definitely, but not the only driver. They have been working on this in the UAE and the GCC more generally since 2005, 2006. There is an objective of future fiscal sustainability through involving broad-based tax systems.said Daou.
This time last year, oil was selling for more than $100 a barrel, while today the price is threatening to dip below $40 a barrel for the first time since 2004.
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