A Change in Tax is the Next Step in Diversifying the UAE’s Economy

The UAE is steadily moving towards introducing two new laws that will not only alter the way foreign countries perceive the country but also how the economy operates. The first new law the UAE will introduce is a uniformed Corporate Tax whereby both foreign and local companies will be subject to pay. Although a corporate taxation scheme is already in place in the UAE, it currently applies to banks. The new legislation that will be drafted by the UAE Ministry of Finance will apply to all companies.

The public is more concerned with the second tax the UAE is considering implementing in the near future. The UAE government is considering imposing a Value Added Tax (VAT) on the sale of certain goods. The idea of introducing a VAT has long been a topic of discussion amongst GCC state members. Well before the financial crisis of 2009, the six GCC member states have been considering introducing a VAT together in order to evade disadvantaging any of the member states.

Currently, the GCC member states are reconsidering introducing a VAT due to the loss of oil revenues. Last May the GCC approved a draft agreement concerning the VAT law.

In general, the introduction of a VAT is a good idea and the necessary step the UAE needs to take in order to move forward and progress further. The International Monetary Fund (IMF) has been urging the introduction of a VAT for quite some time. By introducing a VAT, the economy will not rely on the hydrocarbon sector as much as it does to generate revenues. The government will generate state revenues without depending on the sale or price of oil, which will positively affect the state’s funds.

Additionally, the VAT tax is unbiased as it influences all the public regardless of their nationality, background and status. According to the draft of the legislation, the VAT would not be inflicted on basic goods but on luxury goods and alcohol. Therefore, the VAT permits individuals to alter or diversify the level of consumption according to the amount they can afford.

Taxation is also viewed as a way to invest in the country. The UAE is home to many working foreigners. By imposing a VAT, the residents of the country invest in the country’s future.

The VAT legislation is still being drafted. When the law will be finalized, the public and companies will have approximately 2 years to adjust to the changes it will bring. However, the UAE’s course is steady and clear as it is gradually strengthening its economy to face future challenges.