'UAE should speed up process to impose VAT' |
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The UAE Government should speed up the implementation of value-added tax (VAT) in order to deal with the liquidity crunch and the expected fall in the country's GDP, said a financial expert.
"The VAT will help put an end to the huge waste of resources in all aspects of life in the UAE, from packaging materials to transport, and will also end the excessive use of manpower, which is relatively cheap but shows up as a huge cumulative expense in balance sheets," Dr Humam Al Shamaa, a financial consultant at Abu Dhabi-based Al Fajer Securities, told Emirates Business.
He said 85 per cent of goods consumed locally are imported, unlike the situation in most other countries, where imports constitute no more than 66 per cent of total consumption.
"The more consumption falls, the more imports fall. Therefore, the new suggested taxes and charges should be related to controlling wasteful consumption. For example, shopping malls will consider selling polythene bags to customers rather than providing them for free after VAT is imposed," Al Shamaa said.
"VAT will also change the consumer's preferences and will push him to re-structure his needs under its burden. This re-structuring means concentration on basic goods and reduction in the purchase of luxuries, which will reduce the commercial imbalance during these difficult conditions.
"The present climate is the most suitable for applying the VAT. The local and global economy will now see a fall in prices and this will prove false all warnings we have been given of an increase in inflation if taxes were applied and other charges increased," he said.
Al Shamaa also justified the immediate imposition of VAT by saying: "After the big fall in oil prices, the available financial resources are only the country's overseas investments in sovereign funds.
"Any attempt to liquefy overseas assets is unacceptable because it will change paper losses in the sovereign investments into real losses. Imposing the VAT is the best available alternative for the country, not only to increase liquidity but also for financing current government expenditure and maintaining a modicum of economic stability, especially if oil prices fall further," he said.
By Abdel Hai Mohamad
© Emirates Business 24/7 2008
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