Tax in UAE: VAT causes minor effect on inflation, says Moodys

Abu Dhabi – Mubasher: At odds with previous expectations, the introduction of the value-added tax (VAT) in the UAE did not cause much inflation, which can be understood in the light of the mitigating measures taken by both the government and organisations.

These measures included zero-rating and exempting some items from the VAT, along with the efforts exerted in the real estate sector to keep prices in check, a report by Moody’s Investors Service released on Tuesday explained.

“The impact of the exemptions and zero-ratings in the new tax is visible in the modest inflationary pass-through in sectors such as housing, healthcare and education. Price increases in sectors like transportation were also relatively benign,” the ratings agency added.

Levying the VAT has also contributed to the diversification of the UAE's economy, Moody's analyst Thaddeus Best revealed, forecasting that the VAT would add AED 24 billion ($6.54 billion) per annum to the country’s gross domestic product (GDP).

“Although VAT marks the introduction of the first Federal level taxation, the return of the majority of the associated tax revenues to the Emirates represents a continuation of the existing Federal structure,” Moody’s noted.

With the same concept in mind, the sovereignty and fiscal autonomy of the individual emirates will not be affected by the draft law in the GCC member to issue debt at a federal level, the US-based financial services company remarked.