No VAT impact on inflation |
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The introduction of value added tax (VAT) will not affect inflation in the UAE, says Abdul Rahman Saleh, Executive Director of Corporate Support at Dubai Customs.
Dubai Customs has carried out a study on the planned implementation of VAT in the GCC.
Saleh said VAT would have no effect on the UAE's industrial sector as locally manufactured products are made using equipment and raw materials that were already taxed.
"VAT ranging from three to four per cent will replace the current five per cent customs duty," he told Emirates Business.
"The enforcement of VAT will mean a cut of one or two per cent compared with customs duty and this will support local manufacturers rather than cause the industry to struggle.
"Also VAT will coincide with a cut in fees on establishments, imported labour and other production elements which contribute to inflation."
Saleh was responding to claims by the International Monetary Fund that VAT would push up inflation by two per cent. Inflation last year rose to 11.1 per cent.
"The Dubai Customs study revealed that 140 countries have enforced VAT and some have not used it to replace customs tax instead it is enforced along with customs tax. This was the case in New Zealand where there were negative effects on inflation during the early period of enforcement," he said.
Saleh would not set a date for the introduction of VAT despite expectations, the Federal Government will implement it early next year. He said procedures for collecting the tax would be set out in a bill to be issued.
VAT is a tax on consumption rather than production and is calculated on the stages of production of a commodity or service to avoid repetition. Also it is a neutral tax, which is imposed not on the value of products at their final price, but on the value added at each stage of production.
VAT equates the tax burden on imports with that on locally manufactured commodities.
By Mohamad Al Kady
© Emirates Business 24/7 2008
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