The value added tax (VAT), set to be implemented from January 1, 2018, is estimated to generate Dh12 billion in the first year, while the revenues will shoot up to between Dh18 billion and Dh20 billion in the second year, Obaid Humaid Al Tayer, Minister of State for Financial Affairs, told the Federal National Council on Tuesday.
The UAE will start implementing a value added tax rate of five per cent from January 1 2018, but the introduction of other alternate revenue measures including corporate and income taxes are not under consideration for the time being.
Al Tayer told the House VAT revenues will be shared by the Federal Budget and local governments, but shares were yet to be decided.
The minister was speaking at the House as members discussed the 2017 Budget.
UAE Government has already announced that 100 food items, health, education, and social services would be exempted from VAT.
Companies in the UAE that record annual revenues over Dh3.75 million will be obliged to register under a value added tax (VAT) system, and will accordingly be taxed, according to Younis Al Khoury, undersecretary at the country’s Ministry of Finance.
Companies whose revenues range between Dh1.87 million and Dh3.75 million will have an option to either register under the system or not during the first phase of rolling out the system.
Al Khoury said that it will eventually become obligatory for all companies to register under the VAT system when it is rolled out in Phase 2, but that the ministry is still discussing a date for that.
Al Tayer said GCC countries were finalising their implementation policy. The six member countries have agreed that the tax will not be applied on certain industries like education and health care. Staple food items would also be exempted from VAT.
The decision to introduce the tax comes after various organisations and economists, including the International Monetary Fund (IMF), recommended that GCC countries roll out the tax as a means of generating more government revenues.
It was highlighted even further as oil prices slid from their mid-2014 highs of around $115 (Dh422.4) a barrel to their January 2016 lows below $30, resulting in significant drops in government revenues.
In February 2016, the IMF said oil-exporting countries in the Middle East and North Africa lost over $340 billion in oil revenues from their budgets in 2015, amounting to 20 per cent of their combined gross domestic product.
The decision to introduce VAT is part of the efforts to secure new sources of income that boosts its commitment to diversifying its economy and reducing reliance on hydrocarbons. The new revenues will be used in improving public services for citizens and expatriate residents alike, including hospitals, roads, public schools, parks, waste management and police services, officials said earlier.
Source: Gulf News