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Gulf states to introduce VAT by 2018

Gulf Cooperation Council (GCC) countries will introduce VAT in 2018, at a rate of between 3% and 5%, according to local media reports. 15 Jan 2016

Younis Haji Al Khouri, the United Arab Emirates (UAE) finance minister undersecretary, told reporters that the country expects to raise between AED10 billion ($2.7 billion) and AED 12 billion ($3.3 billion) in revenue, Arabian Business said.

Healthcare and education will be exempt from the tax, as well as 94 food items, Al Khouri said, according to Emirates 24/7.

GCC countries have agreed on the main aspects of the tax on goods and services, although some issues have still to be settled, and two states have yet to finally agree on the proposal, Al Khouri told Arabian Business.

Committees and task forces have been set up to study the impact of the imposition of VAT and the percentages to be charged. Each country will also need to put a domestic tax law structure in place before the GCC-wide implementation, Emirates 24/7 said.

"The VAT can be introduced once any two of the GCC countries are ready with their tax laws and present the same to the GCC Secretariat," Al Khouri said, according to Emirates 24/7.

In the UAE, the draft law has been approved by local authorities and has been sent to the technical committee for legislation at the Ministry of Justice, he added. It will take two years for the law to be adopted, however, so Al Khouri anticipates a 2018 start for the tax in the UAE, Emirates 24/7 said.

Doha-based taxation expert Ian Anderson of Pinsent Masons, the law firm behind Out-Law.com, said: "Hopefully the draft laws will be published well before the proposed 2018 implementation date to allow companies to prepare properly. It is interesting to see a suggestion that there may be a two-speed approach to implementation, with the UAE leading the way."

The International Monetary Fund recently recommended that all Gulf Cooperation Council (GCC) countries should introduce some form of value-added tax as soon as possible. Christine Lagarde said that even at a low rate, VAT would raise considerable revenues.

The UAE ruled out any implementation of income tax in December. Minister for financial affairs Obaid Humaid Al Tayer said that taxing individual incomes would increase wage costs and make the UAE less attractive, particularly for expatriate workers.