High VAT revenues fortify UAE government finances

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The UAE’s value added tax (VAT) collections in the first year exceeded the original estimates and is driven by strong tax compliance, according to credit rating agency Moody’s.

“The government’s 2018 and 2019 VAT revenue forecasts had included conservative assumptions regarding the level of compliance in the initial years of implementation. Nonetheless, the robust level of compliance in the first year of the tax framework is a positive reinforcement of the UAE’s high institutional strength,” Thaddeus Best, an analyst at Moody’s wrote in a report.

Moody’s which rates the UAE at Aa2 stable believes that the stronger than expected tax revenues is credit positive for the country.
VAT collection data released by the government showed collections were far higher than expected, reaching Dh27 billion ($7.4 billion) in 2018 compared to the government’s original projection of Dh12 billion ($3.3 billion), and higher even than the government’s 2019 projection of Dh20 billion ($5.5 billion).

According to Moody’s report, the federal government will retain Dh8.1 billion (30 per cent of collected revenues) while the remaining Dh8.9 billion will be divided among the emirates.