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Abu Dhabi, UAEWednesday 26 September 2018

The broad sweep of the VAT narrative has been confirmed

This week's announcement gives residents and citizens clarity and certainty

The UAE will implement VAT on January 1, 2018. Chris Ratcliffe / Bloomberg
The UAE will implement VAT on January 1, 2018. Chris Ratcliffe / Bloomberg

With the introduction of VAT only months away, the details of how the tax will be implemented have been released. As The National reported yesterday, the landmark law on VAT has been approved by Sheikh Khalifa, the President.

By releasing its list of exclusions and exceptions now, the Government has brought clarity to consumers and residents, allowing them to make informed decisions about their lifestyles and to make preparations for January 1, when the tax is introduced. In the short term, this is likely to translate into a consumer boom in the period up to the end of December, as consumers bring forward spending on goods that will attract VAT and for it to be followed by a dip in household expenditure in the first quarter of next year, as residents and citizens adjust to the new landscape. Experts anticipate that overall, consumer prices will rise by around 1.4 per cent and for VAT to generate Dh12bn in revenues in 2018. This week Adnoc pledged to cut 10 per cent of its oil production from three fields to comply with a deal agreed by global producers earlier this year. Taken together with the VAT law, this shows that the country is moving along the road to an economy less reliant on oil revenues.

It has long been accepted that the introduction of VAT was a leap into the unknown. Residents will have to adjust to new prices and everyone from shopkeepers to large corporations will have to become accustomed to collecting the tax. The approval of the law injects certainty into this environment: we know, for instance, that education and preventative health care is zero-rated, while residential property is exempt.

There is, of course, a significant difference between tax-exempt and zero-rated. Non-essential health care, like cosmetic surgery or education provided by for-profit entities, could conceivably attract VAT one day, while exemption places tenancy contracts outside the taxation system altogether. This kind of granular detail will be fleshed out in the future. For now, the broad sweep of our new tax narrative has been established.

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Read our explainer on Tax in the UAE: Everything you need to know about VAT and a little bit more

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Also read

> Editorial: Excise tax will contribute to a healthier tomorrow

> New VAT law: housing exempt and education at 0%

> Editorial: VAT will be a win-win in the long term

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