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IMF Welcomes UAE's VAT Plan

by Lorys Charalambous,, Cyprus

25 July 2016

The International Monetary Fund (IMF) has welcomed the United Arab Emirates's (UAE) plan to introduce a value-added tax (VAT) and increase excise taxes.

In a statement following the conclusion of its 2016 Article IV consultation with the UAE, the Fund also said that these new tax measures could be followed by a broader corporate income tax.

The UAE's Minister of State for Financial Affairs, Humaid Obaid Al Tayer, told reporters in February this year that VAT will be levied at five percent, with some 100 items exempt. It will come into effect on January 1, 2018.

The UAE and the other Gulf Cooperation Council (GCC) members – Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia – have been negotiating a proposed pan-GCC VAT for more than a decade. In May last year they concluded a draft agreement on the proposal.

Last year the IMF urged the UAE Government to raise more non-hydrocarbon revenues through new tax measures. It said that introducing a five percent VAT and a 15 percent excise tax on automobiles would raise revenue by 2.7 percent and 0.6 percent of non-hydrocarbon gross domestic product (GDP), respectively. Meanwhile, applying corporate income tax to all companies at a rate of 10 percent would raise revenue by 4.1 percent of non-hydrocarbon GDP.

According to the IMF's recent statement, the UAE's fiscal balance turned to a deficit of 2.1 percent of GDP in 2015, despite a strong fiscal response to lower oil prices.

TAGS: United Arab Emirates | tax | economics | value added tax (VAT) | Kuwait | Saudi Arabia | fiscal policy | gross domestic product (GDP) | International Monetary Fund (IMF) | corporation tax | Bahrain | Qatar | oil and gas | tax rates | tax reform | Gulf Cooperation Council | Oman

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