The impact on oil prices has paved way for new ideas on boosting public revenue, and considering the suggestions by IMF, the GCC governments are mulling over the thought of introducing VAT and corporation tax.
The GCC, with its tax-free environment, has attracted investors from various parts of the globe. But, when you take into account, the indirect cost implications associated with running an establishment, one might support VAT and avail of the facilities like – ease of conducting business, fair legal framework, and support systems for new establishments.With the VAT revenue model, these things could be improved.
The initial costs at the time of registration are a burden for new entrants and small businesses. Nearly 95% of the establishments in the UAE are SMEs and make major contributions to the country’s GDP and the sector needs more support than ever!
The tax structure and the implementation plan has not been confirmed as of now. But according to various sources, it is expected to be in place by 2018.
Younis Haji Al Khoori, Undersecretary at the MoF, said that the GCC countries have agreed to unify their tax policies before the introduction of the VAT. He reckoned that the UAE stands to earn estimated VAT revenues of between Dh10 billion and Dh12 billion in the first year of its application. He reiterated that this amount is after exempting sectors such as healthcare and education in addition to several food items of the new tax.
Saudi Deputy Crown Prince, Mohammed bin Salman bin Abdulaziz, Second Deputy Prime Minister and Minister of Defence, confirmed that Saudi Arabia was gearing up for the introduction of VAT but ruled out the imposition of any income tax in the country.
There are going to be no income taxes, and no wealth taxes, We’re talking about taxes or fees that are supported by the citizen, including the VAT and the sin tax
– Prince Mohammed bin Salman
VAT at a glance
- The initial rate of VAT is likely going to be between 3-5%
- Staple food items, healthcare, education, and social services exempted from VAT
- A key decision to stabilize the economy which is less reliant on oil income
- VAT will be introduced across the GCC region, and only in the UAE
- The retail sector will be protected, with price increases not giving too much of an impact for the middle and low income group
The introduction of tax will put SME’s in good stead, assuring of good service. The fund generated will overall benefit the business environment and to see how this will be implemented and put into effect is a thing to wait and watch!
Sources: The National, Gulf News, Emirates 24|7