House members put questions about Government’s plan to offset inflationary effects once the tax is implemented
Abu Dhabi: Members of the Federal National Council will raise with Obaid Humaid Al Tayer, Minister of State for Financial Affairs, the concerns of residents and businesses over Value Added Tax (VAT), set to be levied as of January 1, 2018.
Dr Saeed Abdullah Al Mutawa, a member from Sharjah, will put two questions on impact of VAT on the national income and the Government’s plan to offset inflationary effects of the tax and whether salaries of employees will be increased.
The UAE will be levying VAT from the beginning of next year. The rate of VAT will be 5 per cent.
The country’s average inflation rate was 4 per cent in 2015. The inflation rate is expected to be around 2.5 per cent this year given the firming US dollar and a decline in imported items coupled with the slowdown in transportation and housing rents.
VAT will provide the UAE with a new source of revenue, which will continue to be utilised to provide high-quality public services. It will also help the Government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.
VAT, as a general consumption tax, will apply to the majority of transactions in goods and services. A limited number of exemptions may be granted.
As a result, the cost of living is likely to increase slightly, but this will vary depending on an individual’s lifestyle and spending behaviour. If an individual spends mainly on those things which are relieved from VAT, he is unlikely to see any significant increase.
Hamad Ahmad Al Rahoumi, a member from Dubai, will put three questions on banks’ demands to delay levying of VAT and change in retirement laws to give Emirati pensioners annual inflation-linked rises.
The Government requires businesses to be clear about how much VAT an individual is required to pay for each transaction. Based on this information, individuals can decide whether to buy something.
Marwan Ahmad Bin Galita, First Deputy Speaker of the House, will put a question on educating members of the public about the new tax.
The introduction of VAT could push the cost of living and cost of doing business higher in the Gulf Cooperation Council (GCC) region, according to investment professionals and finance experts.
A VAT rate of five per cent could help generate additional revenue equivalent to about 1.5 per cent of the country’s gross domestic product, according to International Monetary Fund (IMF) estimates.
Other experts, however, say VAT will decrease the consumer purchasing power and hence suppress demand, and thus be anti-inflationary. Whether the introduction of VAT will increase inflation or not, however, depends on other factors such as economic growth and interest rates, they say.
The House will also review the 2018 budget, approved by the Cabinet last month.
A record Dh51.4 billion federal budget for next year was approved with a focus on education, health care, and community wellbeing. Over the next four years, a total budget of Dh201.1billion has also been approved.