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Abu Dhabi, UAEWednesday 19 September 2018

VAT in UAE: Water and electricity bills to be subject to 5%

With 35 business days left until the implementation of valued added tax in the UAE, final details have emerged about which goods and services will be subject to the levy

Utility bills in UAE homes will be subject to 5% VAT. Pawan Singh / The National
Utility bills in UAE homes will be subject to 5% VAT. Pawan Singh / The National

Water and electricity bills in the UAE will be subject to the 5 per cent value added tax from January 1.

With 35 business days left until the implementation of valued added tax in the UAE, final details have emerged about which goods and services will be subject to the levy and which will be zero-rated and exempt.

Value-added tax, known in some countries as goods and services tax, or GST, is a consumption levy imposed on a product at each stage of production, before the final sale.

A 5 per cent VAT is set to come into force in the UAE and Saudi Arabia on January 1 with the rest of the GCC following by the beginning of the following year. In the UAE, VAT could generate Dh12 billion in its first year and Dh20bn in its second year, according to Sultan Al Mansouri, the Minister of Economy.

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According to the executive regulation which has been approved by the UAE Cabinet and will be issued soon, a copy of which has been seen by The National, water and electricity are considered supplied goods.

In article 2, headed “Supplies of goods”, it says: “A supply of water and all forms of energy including electricity and gas… whether used for lighting, or heating, or cooling, or air conditioning or any other purposes.”

In Abu Dhabi, water and electricity prices have been rising as the Government reduces subsidies to encourage more efficient use of resources.

The introduction of VAT is set to increase the cost of living by about 2.5 per cent, according to several forecasts.

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At a presentation given yesterday in Dubai by the Federal Tax Authority, it was underlined that anything which is not included in the executive regulation as exempt or zero rated is subject to VAT at the standard rate.

This includes petrol, diesel, cars, clothes and electronics. Online retailers will also have to ensure that VAT is applied to goods sold on their platforms, even by third parties. Other digital businesses such as “social influencers” are also subject to VAT, the authority said.

David Daly, a chartered accountant in the UAE and the UK and partner at Argent Gulf Consulting, said that while the details are now being confirmed, the big picture has been long trailed.

“For example the big picture includes tuition fees, where the curriculum is Government approved, being zero rated while the details include school uniforms as standard rated,” he said.

The UAE also introduced in October excise tax on energy drinks, tobacco and sugary drinks.

The implementation of VAT across the GCC could be delayed due to coordination and preparatory work requirements needed to introduce the tariff at the beginning 2018, the IMF said last month.

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