The Dubai government is assessing how it can stimulate sectors that may be most affected by the impact of value-added tax (VAT) when it is introduced in the United Arab Emirates next year, a representative from the Executive Council of Dubai said this week.
Speaking at the Dubai Investment Forum on Monday, Aisha Miran, assistant secretary general for strategy management and governance at The Executive Council of Dubai, the government’s decision-making arm, said it tries "as much as possible, to voice our private sector concerns, but every decision we make is about trade-offs", she said in a discussion addressing the potential impact VAT may have on foreign direct investment when it is introduced from January 1, 2018.
All six Gulf Cooperation Council countries agreed last year to introduce a new five percent rate of VAT on an array of goods and services, as part of attempts to diversify their economies away from a reliance on hydrocarbons and focus on other sources of government revenue.
"What's important is how you can transfer this into a win-win situation and potentially for all of this to not be harmful," Miran said.
"We are looking at potentially what sort of economic sectors that will be impacted by VAT and how we, as a government, can stimulate that, whether through regulations, through relaxations of certain fees and so forth.
"I cannot promise what are the tools that we are going to impose over the coming period, but we know for a fact that VAT is coming and it's not going to please everyone, but it is something that the government is currently looking into to see how can it be successful for the UAE but, at the same time, not to harm the strategic sectors that today offer advantage to Dubai."
Speaking at the same event, Raed Safadi, chief economic advisor to Dubai Economy, told delegates he did not believe that the introduction of VAT would have a significant impact on foreign direct investment flowing into the UAE as it had been preceded by "10 years of discussions" with key players in the private sector.
"It took a long time and it has been introduced because there is a consensus within the economy that we need such taxes," Safadi said.
"And those taxes are not going to be just sucked out of the UAE economy. They are going to be re-injected in this economy to build more roads, build more bridges, increase capacity, increase efficiency, the whole lot," he said, adding that the decision to introduce a federal tax gave the country the ability to ensure continuity of investment, irrespective of the price of oil.
He also said that despite the five percent rate of VAT being imposed on many goods and services, the overall impact on inflation will likely be "less than half of a percentage point", because businesses would absorb much of the increased costs directly. The emirates is expected to release details of the goods and services that will be subjected to VAT in the coming few months.
"I look at it as a positive thing,” Safadi said.
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