INTRODUCING A 5% VAT IN 2018

Come next year, in many GCC countries, including the United Arab Emirates (UAE) a 5% value-added tax (VAT) will be introduced. The implementation of the tax will start on the first of January, next year. For the time being no other tax measures are being implemented. What does this tax mean for your business?

VAT is a consumption tax implemented on the value-added on each stage of production. This is different from a sales tax: a VAT is based on invoices and collected each time a value is added and a sale is made. Because it is a consumption tax, the final tax is ultimately levied on consumers (it is added to the price of the good). For businesses that manufacture products that are purchased from other businesses and have some value-added components, this might increase the cost of production but not considerably.

This notwithstanding, a list of 100 goods and services will be exempted from the VAT in order to avoid taxing necessities that even low-income individuals survive on.

Given the recent situation of decreased oil prices and declining government revenue, it is necessary that some sort of tax is collected in order to raise revenue for the government.

The chief of the International Monetary Organization (IMO) said, when she addressed the media, that the UAE which has diversified and set up capital buffers is well structured to gradually introduce a “careful tax system” and that a VAT as low as 5% will have negligible effects on businesses and people in general. In the meantime, this announcement has been made ahead of time to give businesses time to adjust.

Source: Khaleej Times