The VAT is
charged at every step of the 'supply chain,' and consumers generally bear the
VAT cost.
The
initiation of a Value Added Tax (VAT) regime in the UAE marks the opening of a
new age in the history of the UAE economy where the common public will start
sharing the burden of budgetary expenditure, which was launched from January 1,
2018.
While the VAT
is presumed to contribute Dh12 billion to the UAE exchequer and enhance the GDP
of UAE, studies show that consumption tax across GCC countries is expected to
raise additional revenues between 1.2 to 1.6 percent of GDP to the UAE in the
first year.
VAT Implementation
across GCC:
The United
Arab Emirates, along with Saudi Arabia, has taken the pioneering step in
introducing VAT in the entire region. It will be implemented slowly across the
GCC in phases over the coming years.
The most
significant concern around the introduction to tax is its impact on purchasing
power and the overall cost of living. Government and independent analysts have
allayed concerns that Vat in UAE will result in a
sharp increase in the cost of living.
VAT
Impact:
"The
result of Value added tax on inflation, and government revenue would depend on
the proportion of expenditure in the economy and how much of the consumption
base is captured by Value added tax. We expect a portion of Value added tax to
be absorbed by the supply chain. By incorporating a large number of items
consumed by the general public in the zero-rated or exempt category, the
inflationary result of the new tax has been mostly muted.
While Value
added tax is applied at a uniform rate of 5 percent on taxable supplies, plenty
of goods and services are either zero-rated or in the exempt category in the
United Arab Emirates, reducing the overall inflationary impact. Though, it is
true that Value added tax would decrease the purchasing power of the United
Arab Emirates, residents in proportion to tax paid on consumption.
Common
types of VAT Consumption:
It is the
reality that the United Arab Emirates is new to taxation; the Value Added Tax
implementation has come with its fair share of opinions in the minds of all
stakeholders. VAT is one of the most common kinds of consumption tax that has
been implemented in more than 150 countries around the world.
A VAT is
charged at each step of the 'supply chain.' Final consumers generally bear the
Value Added Tax cost while Businesses gather and account for the tax, in a
process acting as a tax collector on behalf of the government.
Taxation is
a world-wide accepted practice of augmenting and diversifying government
revenues. Steadfast low oil prices over the past three years have brought considerable
economic pressure on the Gulf Cooperation Council countries. This had led to an
urgent requirement to change revenue streams.
Although
most expatriates living in the United Arab Emirates are used to some form of
indirect taxes in their homelands, the newness of taxation here has generated
some amount of unease among consumers and businesses. The inauguration of a new
tax in a region that is used to subsidies and absence of government levies
comes with apprehensions on the mechanics of implementation, impact on the
economic growth and inflationary pressures.
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