After Saudi Arabia, Will the UAE Push for a VAT Hike? UAE Dismisses Speculations

After Saudi Arabia has announced that it will be pushing for economic measures which include the increase in their value-added tax (VAT) to ease the effects of the global health crisis in the Kingdom’s economy, speculations have arisen on whether the UAE will do the same thing in light of the situation the entire region is dealing with. 

Despite the recommendations presented by the International Monetary Fund (IMF) to double the amount of VAT collected by the government, the UAE government announced that it will not be doing so anytime soon. 

After Saudi Arabia, Will the UAE Push for a VAT Hike?
Credits: Elmer Bajora/Flickr

UAE Dismisses Speculations of VAT Hike

According to the UAE’s Minister of State for Financial Affairs, Obaid Al Tayer, the government is not so much concerned about the recommendations to increase the value-added tax, as shared in a report by the Gulf News.

This is because, as per state economists, there has to be a proper evaluation of the past two years since VAT was implemented and develop solutions that can make the scheme more effective to economy and society alike before adopting any new IMF recommendation to increase the value-added tax (VAT).

The UAE first introduced VAT on January 1, 2018, to pay for public services and continue the shift away from a dependence on oil as a source of revenue.

In a government report released last year, VAT revenues have reached AED 27 billion, far higher than was forecast in the first year of implementation. The initial projection was for AED 12 billion.

However, Al Tayer pointed out that only 2018 data on VAT was available, which is insufficient to make a credible assessment of the tax impact.

He explained, “The UAE introduced VAT on January 1, 2018, [a period] which is insufficient to make an in-depth analysis of the VAT impact with reasonable credibility, considering that the 2019 data has not been issued as yet.” 

Al Tayer added that the 2018 indices were for a very short period, which cannot gauge the impact of VAT on the economy. “We need at least three to five years to study the impact of VAT on the gross domestic product (GDP),” he said.

In line with this, the finance minister also said that geopolitical conditions, a drop in oil prices, coronavirus, and sanctions imposed on certain countries have to be taken into account when assessing the VAT impact.

And while more data needs to be collected to come up with a position regarding the IMF’s recommendation, residents in the UAE are advised to adhere to social guidelines upon their return to work and to once again activate the economy, which was severely affected by the global health crisis, which the rest of the world is still dealing with. 

What are your thoughts regarding this update? Do you think increasing the VAT in the UAE will create an impact on the economy, especially during this situation where many have lost their jobs and have yet to settle their bills because of the lockdown and movement restriction enforced to limit the spread of the virus in the country? 

ALSO READ: New update on excise tax laws and regulations

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