VAT may come to the UAE in 2014

A new report from the World Bank insists that the GCC countries could implement a value-added tax (VAT) by as soon as 2014.

“The GCC countries continue with their endeavours to introduce a VAT system with a target for doing so in the next two to four years,” the latest Paying Taxes 2013 study by World Bank, IFC, and PwC maintains.

The study maintains that background work on a GCC-wide implementation of VAT is ongoing, and outlines that that the preparation for VAT implementation across Gulf nations, which include the UAE, Saudi Arabia, Qatar, Kuwait, Bahrain and Oman, includes an intention to harmonise the VAT laws, which will be introduced by adopting a VAT framework law.

Rumours about VAT implementation in the UAE have been circulating since 2008, when a UAE study suggested the implementation of a 2 to 5 per cent VAT by the first quarter of 2009.

The average standard VAT rate across the 27 member countries of the European Union (EU), however, is more than 21 per cent in 2012, according to global taxation expert Ernst & Young. In addition, news broke out this morning that UK may be forced to raise the VAT rate to 25 per cent as Chancellor George Osborne continues his battle to restore Britain's economic health.

Whereas a proposed VAT rate of up to 5 per cent in the UAE should not have a huge impact on most of the end-consumers’ finances, anything beyond 10 per cent is bound to squeeze residents and visitors in the country.

A VAT of 20 per cent on a Dh150,000 car, for instance, will make it dearer by Dh30,000, which in effect will result in a higher EMI (equated monthly instalment), thus impacting personal finances of UAE consumers in a big way.

Similarly, tourists looking to snap up a Dh100,000 luxury watch will have to shell an additional Dh10,000 in case a 10 per cent VAT rate is implemented. This may diminish a little the UAE's allure for foreign tourists as a shopping paradise although retailers may absorb a part of the tax to keep it competitive.