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Abu Dhabi, UAESunday 9 December 2018

VAT will be a win-win in the long term

Taxes on consumption will make the economy more efficient

Taxes will boost the UAE's economy, which in turn will boost the spending power of consumers. Kai Pfaffenbach / Reuters
Taxes will boost the UAE's economy, which in turn will boost the spending power of consumers. Kai Pfaffenbach / Reuters

With salaries stagnant and the cost of living increasing, people have been understandably perturbed over the impact of the introduction of VAT on January 1, as well as an excise tax on tobacco and fizzy drinks due in the fourth quarter of this year. However, while taxes have a stigma attached to them in more developed markets where taxpayers feel overburdened, they can impose a healthy discipline on an economy when levied and collected properly.

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Read our essential tax guide here: Tax in the UAE: Everything you need to know about VAT and a little bit more

UAE tax laws by September, may increase consumer prices by 1.4%

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The flow of information about these taxes on consumption in the UAE has started to pick up, which should mitigate some of our fears and apprehension. As The National reported yesterday, the Government estimates that the taxes could lead to a one-off increase in consumer prices of a modest 1.4 per cent. More details will be be available on VAT by the end of September, when the law on tax is expected to be published.

The introduction of these taxes will be a crucial step in widening the Government’s revenue base and will constitute one plank in creating a platform for a post-oil future. The tax regime is expected to boost GDP by about 1.5 per cent and will crucially bring more transparency to business and commerce. It is also worth considering that as our economy grows, so will consumption and the revenues generated from taxation. Government policies designed to protect and enhance these revenues will naturally also boost the spending power of consumers. This could support job and wealth creation. It should, in the long run, prove to be a win-win situation.

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