The UAE has not taken a decision on whether to introduce a value added tax in 2010, once considered an inflation-fighting tool.
UAE yet to decide on VAT in 2010
ABU DHABI // The UAE has not taken a decision on whether to introduce a value added tax in 2010, the Finance Ministry Undersecretary Younis al Khouri told reporters on Monday. The country has raised the possibility of introducing the tax, partly as a money-supply strategy. In 2008, during the height of the economic boom, runaway inflation climbed as high as 11 per cent, driven by food costs and high residential and commercial rentals. Officials had said value added tax could be raised or lowered to soak up excess money in the economy, much as central banks would use interest rates for the same purpose. As the UAE pegs its currency to the US dollar, its interest rate policy is obliged to move in step with the US Federal Reserve. Without recourse to interest rates as a tool of monetary policy, local finance officials called for the introduction of value added tax as a proxy.
However, since the onset of the worldwide financial crisis in the last quarter of 2008, inflation has fallen rapidly, to between 3-4 per cent. Separately, Mr Khouri said federal revenue from investments and services for 2010 was projected at Dh20.8 billion. Earlier on Monday, the finance ministry said the UAE plans to increase 2010 state spending by 3.4 per cent to Dh43.6bn ($11.87 billion) in a balanced budget.
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