UAE had introduced the VAT Tax regime on the 1st of January this year. The rate of VAT was fixed at 5 percent. The objective of the new Tax Regime was to increase the existing as well to generate new sources of income for providing better quality and improved public services.
The move was also aimed at reducing the over-dependence on oil and other hydrocarbons as a source of revenue. UAE and the KSA were the among the first GCC members to introduce VAT. The remaining GCC council members which still rely heavily on oil revenue have solemnly pledged to introduce VAT in a timely manner.
VAT is a consumption tax and its implications include a slight rise in the cost of living for citizens. However, the cost of living may vary as per individuals lifestyle and consumption.
DUBAI and VAT
Dubai is one of the seven emirates that together form the UAE. It is the largest and the most populous city in the UAE. Besides this, it also enjoys a commercially advantageous position in terms of geographic location and tourism.
Over the years, it has been the flag bearer for the middle east in terms of trade and commerce also. Unlike other cities of the GCC Council, Dubai has relied little on revenue from oil. Hence, Dubai was supposed to profit little from the VAT regime.
The major revenue generating sectors for the city has been tourism and retail. Dubai is one of the most expensive and costliest cities in the world right now.
To sustain the global competitive advantage, the emirate has committed to not raise government fees for the next three years. The same was confirmed by Sheikh Hamdan, Crown Prince of Dubai and Chairman of the Dubai Executive Council, via his Twitter account. The UAE’s cabinet made a similar commitment last week not to increase fees at a federal level for three years.
Low tax environment was one of the paramount reasons for the tremendous revenue generated by this global city from various sources like business licensing, parking and transport, real estate approvals. As per experts, these factors will constitute about 71 % of the state revenue generated in the ongoing fiscal year.
Also, a moderate increase in inflation was recorded in January. The welcome move by the UAE’ s cabinet will surely foster a better competitive environment for Dubai as a global city. At the same time, it will aid UAE’s effort to break itself from the clutches of an oil-dependent economy.
In the end, it will be for time to judge whether VAT propels UAE towards a sustainable oil independent revenue model and inspires other GCC Council members to follow suit.