UAE must allow itself flexibility on tax regime

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VAT itself must be treated as a work in progress and changes made where and when needed.

In 2018, the UAE’s Gross Domestic Product (GDP) was estimated at $414 billion. It was in the same year that a value-added tax (VAT) of 5 per cent was introduced for the first time, with a targeted revenue of Dh12 billion.

The federal share of the revenues was set at 30 per cent, and the seven emirates claiming the remainder 70 per cent. According to the CIA Factbook’s 2017 estimates, UAE’s household consumption alone represented 34.9 per cent of GDP, which when multiplied by $414 billion and then by 5 per cent produces a projected VAT revenues’ figure of Dh26.5 billion.

That said, VAT revenues collected in 2018 surpassed the announced target, with Dh27 billion. Of the Dh27 billion, Dh8.1 billion went to the federal government and Dh18.9 billion to the seven emirates in proportion to the share of VAT-related transactions that took place in each emirate.

As a result, Dubai claimed the highest share among the seven, receiving more than 40 per cent of the Dh27 billion collected in VAT revenues. Given that more than one year elapsed since VAT’s introduction, it is time to discuss its impact and what can be improved moving forward.