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VAT . . . a Good Thing?

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The tax-free environment in the GCC is set to change, VAT will help GCC economies experience diversified growth, says Mas Meghji

May 17, 2012 3:18 by


“GCC countries need to be able to di­versify their economies. We’ve seen vola­tile oil prices, so governments are uncer­tain about their sources of revenues,” said Nasser Saidi, chief economist at the Dubai International Financial Centre Authority


UAE residents – 80 per cent of which are expatriates – are already paying indi­rect taxes, custom duties and several other charges. Saidi believes VAT would con­solidate the various fees UAE residents have to pay and would lower the overall burden. The general consensus is that VAT is the best way forward as it encourages savings and tax consumption, he said.

Ruba Al Hadi, economist with a multinational research firm, based in DIFC, said that for some time now the GCC states have been considering the introduction of VAT to compensate for the revenue lost as a result of the aboli­tion of the import tariffs in the context of their custom union and planned FTAs with trading partners such as the United States and European Union. There­fore, the introduction of VAT is an issue that concerns the UAE as a member of the GCC.

VAT as a viable source of govern­ment revenue was first introduced in Eu­rope and gradually spread to other coun­tries. The VAT is now a key component of the tax system in more than 120 coun­tries, she said. It is estimated that VAT raises more than one-fourth of the world tax revenue. If VAT is well designed and implemented, it can be an efficient way to raise revenue for government and modernize a country’s taxation system.


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