UAE introduces VAT threshold for firms in phase 1

The United Arab Emirates has outlined details about the first phase of the value added tax system, which is expected to be introduced in the country in 2018.

Under phase one, companies which record annual revenues of over Dhs 3.75m will be obliged to register under the system and will be taxed accordingly.

Companies that make annual revenues of between Dhs 1.87m and Dhs 3.75m will be given the option to either register under the first phase or wait until phase two, a senior ministry official said.

Details about the second phase, which will apply to all the companies operating in the UAE, have not yet been revealed.

Also read: To tax or not : How VAT will impact the UAE

Undersecretary at the UAE Ministry of Finance Younis Al Khoury also confirmed that GCC countries are yet to finalise their implementation policies, reported Gulf News.

He reiterated that they have reached an agreement that certain industries and products will not be taxed. These include education, healthcare and staple foods items.

Earlier this year, Oman’s Minister of Financial Affairs Darwish Al Beloushi disclosed that the GCC countries finalised a VAT rate of 5 per cent.

The UAE is set to be the first GCC country to introduce VAT in 2018 and is expecting to generate around Dhs 10bn to Dhs 12bn in revenues in its first year of implementation.

The decision to introduce VAT was reached after receiving recommendations from various organisations and economists, including the International Monetary Fund.

Earlier this year, IMF managing director Christine Lagarde told finance ministers at an event in Abu Dhabi that it was time for Gulf states to introduce more taxes, including corporation tax, property tax and excise duties. The region should also prepare itself for personal income taxes, she added.

According to the IMF, oil-exporting countries in the Middle East and North Africa have lost over $340bn in oil revenues from their budgets in 2015, which amounts 20 per cent of their combined gross domestic product.

The introduction of VAT is hoped to make up for the significant drop in government revenue caused by falling oil prices.

However, according to a survey carried out by CFA Society Emirates earlier this month, 82 per cent of respondents said VAT would lead to higher inflation rates, with the luxury and automobile market being most affected.

Read more here: 80% of professionals would leave GCC if income tax introduced

But CFA Society Emirates president Amer Khansaheb asserted that long-term benefits of the implementation of VAT will outweigh the short-term costs.

“The short-term impact will be offset by the long-term benefit VAT will bring to the regional economies. There is an urgent requirement to diversify government revenues, which are currently still largely dependent on income from oil and gas, and VAT is a measure that will allow more stability given that the outlook for crude prices remains volatile.

“Additionally, VAT would encourage more responsible consumer spending patterns and prices would have to be reduced in order for demand to match this trend; which would eventually lead to a decrease in inflation rates.”