UAE businesses seek VAT waiver for a year to stimulate demand

Private and family owned businesses in the UAE have requested the government to waive off value-added tax (VAT) for six months to one year in order to help stimulate demand in the economy.

A letter sent by family-owned business groups to Dubai Supreme Fiscal Committee have suggested establishing a private-public sector committee, reducing VAT from five per cent to two per cent, eliminating licensing fee, accelerating payment to suppliers and contractors, freezing of 2.5 per cent market fee, 50 per cent reduction in customs fees and water and electricity in order to help them overcome Covid-19 impact.

Rizwan Sajan, chairman and founder of Danube Group, said demand is slow across all the sectors due to job losses and salary cuts, therefore, VAT relief will stimulate demand for consumer goods in the country.

"This, in turn, will help businesses and the overall economy. Importantly, many countries around the world have also offered tax sops to businesses and consumers. Since VAT is the only consumer tax applied here, and waiving off this tax can stimulate demand. We request government to consider it on a priority basis. We are quite confident that this step will expedite the recovery of the UAE economy as country reopens. Moreover, we also requested waiver on utility and telecom charges," said Sajan.

On Monday, May 11, the UAE's Ministry of Finance announced that it will not increase VAT after Saudi Arabia tripled it to 15 per cent.

Rajiv Raipancholia, CEO of Orient Exchange, said remittances have dropped by 30 per cent to 40 per cent and there are job losses and reduced salaries due to Coronavirus impact.

"A waiver in VAT till year-end would support the end-consumer in terms of reduced expenses to make ends meet. At the same time, landlords need to give a rent free period of two - four months to retailers otherwise the brick and mortar model will face huge challenges of continuity," said Raipancholia.

Suresh Sumar, Chairman of the Indian Business and Professional Council (IBPC), it is good if the businesses start to do well as a result of these measures as the amount of VAT collection after 6 months will more than offset loss of revenues for the government.

"It is certainly worthwhile as businesses are operating on thin margins and with social distance in place at workplace, the cost will go up. So any such relief that businesses will get is good. I think six months VAT waiver is a good period. It will give businesses an opportunity to restart," he said.

He suggested that sector-specific should be taken that will have better and strong impact on those sectors. "We have been regularly communicating and authorities are also actively participating," he added.