Tuesday, 4 March 2008

UAE seen to implement VAT ahead of other Gulf states

UAE seen to implement VAT ahead of other Gulf states

DUBAI — The UAE will more likely be the first Gulf country to start implementing a wide-ranging Value Added Tax (VAT) system after the Gulf Cooperation Council (GCC) members complete a currency union planned for 2010.

Having a service-oriented economy and wanting to be the regional hub for trade and investment, the UAE has been looking for other sources of income other than oil exports, according to an official of Ernst & Young, a global professional services firm.

“The UAE is the most advanced among the GCC members in studying the VAT system,” said Kuwait-based Farooq Mohammad Ladha, head of tax for the Middle East at Ernst & Young: Al Aiban, Al Osaimi & Partners.

However, he stressed yesterday that the UAE would have to look further into its fiscal policies because for a long time it has not seen any “real necessity to collect more taxes” due to high oil export receipts. The GCC states agreed in 2001 to boost regional trade by forming a European Union-style monetary union by 2010.

Ladha also mentioned Oman as another Gulf state wanting to implement the VAT system at the earliest possible time for additional source of income. The four other GCC members are Saudi Arabia, Bahrain, Kuwait and Qatar.

He said that the emergence of VAT regimes worldwide has been the most significant development in global tax policy and administration for the past decades. Over 143 countries levy VAT, which accounts for over 20 per cent of the world’s tax revenues.

He added that the growing importance of VAT is partly due to the drop in government revenues from import and excise duties because of the dismantling of trade barriers over the past 20 years.

He explained that VAT is a consumer tax collected by VAT-registered businesses on their supplies of taxable goods and services.

If the amount of VAT paid by the business is more than the VAT charged by the businesses, the tax authority must repay the excess to ensure that VAT is paid by the ultimate customers, not by the business.

Ladha said that Gulf countries have brought down their corporate income taxes in the past few years to attract more foreign investments.

Kuwait, for instance, has reduced to 15 per cent from 55 per cent its tax on profit while Qatar is talking of bringing it down to 12 per cent from 35 per cent and Oman cut it down to 12 per cent from 30 per cent. Saudi Arabia imposes a reduced tax on profit of 25 per cent from 45 per cent four years ago.

Ladha said that lower corporate income taxes breed a healthy economy because they will entice more foreign business to come in. He added that all the concerned government has to do is protect the local entrepreneurs by not allowing certain industries to come in and compete with them.

Ernst & Young yesterday gathered its more than 100 clients from across the Middle East for a conference in Dubai yesterday, wherein the latter were advised on how to deal more efficiently with their tax obligations.

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