x

Abu Dhabi, UAEMonday 18 June 2018

'Laggards' must not delay GCC implementation of VAT

While some in the GCC are dragging their heels over the introduction of VAT, the UAE must press on

VAT, which would make goods and services more expensive, will be introduced in the framework of the GCC custom union. Silvia Razgova / The National
VAT, which would make goods and services more expensive, will be introduced in the framework of the GCC custom union. Silvia Razgova / The National

For some, the great guessing game about the introduction of VAT continues. As The National reported, Abdelhak Senhadji, deputy director of the fiscal affairs department at the IMF, said that there is some scepticism in the air about whether VAT can be introduced in time by each member of the GCC to meet the 2018 deadline. Only Saudi Arabia and the UAE have so far published VAT laws and are on track for January 1.

Mr Senhadji and the IMF are right to be concerned that some member states of the GCC are dragging their heels. He is also right to issue the warning that “countries should not necessarily rely on the laggards to delay the reforms that are necessary for them to restore fiscal sustainability.”

A comment piece published by this newspaper on Sunday described the case for the introduction of VAT as “compelling”. Meanwhile, Michael Patchett-Joyce, a contributor to the business pages, warned that anyone who was led “down the garden path” into thinking that VAT might be delayed risked finding themselves in a “fool’s paradise”.

For several reasons, this newspaper continues to support the introduction of VAT on time. While it is clear that there will be some sharp price adjustments for consumers, this is a medicine that we must all take. Predicted VAT revenues for next year are estimated at around Dh12 billion, a figure that amounts to around a quarter of the federal budget. It would be foolhardy for the Government to defer that income because other less prepared nations in the region are not moving ahead fast enough. It would also be foolhardy to defer our transformation towards a post-oil economy. In addition, a more expansive tax environment is required over time as revenues from oil soften. Informally, the IMF has suggested a basket of tax plans would assist the Gulf countries, including the possible introduction of personal income tax and, possibly, taxes on property sales, such as stamp duty, which is levied elsewhere in the world.

The message in this is clear. Tax is coming and it is better for the broader good of all of us not to expect some 11th-hour delay. A fool’s paradise serves none of us well. The structured and measured introduction of a tax regime, on the other hand, undoubtedly does.