The GCC has confirmed that VAT will be in place across the board by early 2019. So what does that mean for you?

Just a few days after IMF managing director Christine Lagarde encouraged the GCC to start thinking about taxation, all GCC countries – including the UAE – have announced that they will introduce Value Added Tax (VAT) by January 1 2019.

The VAT will be introduced at a rate of five per cent, with Oman’s Minister of Financial Affairs Darwish Al Baloushi saying that there were negotiations on the rate, with arguments for between three and five per cent.

All GCC countries will be able to introduce the tax anytime between January 1 2018 and January 1 2019 says Minister of State for Financial Affairs Obaid Humaid Al Tayer.

“There’s a span of one year flexibility given the readiness of each country,” Al Tayer explained. “A lot of ground work needs to be done before implementing VAT. The private sector will need time to prepare for complying with tax rules that is the reason we are giving enough time for all.”

Exactly how the VAT will be implemented in the UAE hasn’t been confirmed. One thing that’s been confirmed by UAE officials is that VAT will not be applied to education, health care, bicycles and 100 staple food items.

Younis Al Khouri, the undersecretary to the UAE’s Ministry of Finance, has said they estimate Dhs10 to 12 billion will be generated by the VAT tax in the first year alone.

The move is partly due to falling oil prices and uncertainty about the future of the industry – in the 1970s oil made up 90 per cent of the UAE’s GDP (gross domestic product). And today? It stands at roughly 30 per cent due to a weakening oil dollar and the strong diversification of the UAE economy.

SO WHAT WILL VAT MEAN FOR YOU?

According to Economy Watch, “Value added tax or VAT is an indirect tax, which is imposed on goods and services at each stage of production, starting from raw materials to final product.”

Here’s a good guide to it:

Will this mean more expensive shopping? Yes, it could. With VAT, ultimately only the end consumer (people like us) are charged, but the GCC VAT rate will be very low by worldwide standards.

In Albania the rate is 20 per cent, in Australia it’s 10 per cent, in Austria it can be up to 20 per cent – and that’s just the ‘A’ countries.

Hungary has the highest VAT rate in the world at 27 per cent, followed by Iceland at 25.5 per cent, and then Croatia, Denmark, Norway and Sweden at 25 per cent.

According to an article by compareit4me.com expert Sonja Stephen on EmiratesWoman.com: “The retail sector will be protected as much as possible, with price increases not being too much of a shock to middle and low income earners. Good news, right? Big purchases will obviously take bigger hits, like cars for example.”

She goes on to explain that VAT is “a positive move to help diversify the government’s sources of income and also a move to put the UAE more in line with an idea that many other countries, globally, have already put into practice. The region will no longer maintain its zero-tax proposition, that’s true, but the impact on our daily lives will be minimal…and the UAE, meanwhile, will continue to flourish.”

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