In Thursday morning’s The National newspaper it was reported a draft law is to be constructed to introduce a Federal Sales or Value Added Tax (VAT) and Corporation Tax. If you wish to read the full article please visit http://www.thenational.ae/business/economy/uae-government-draws-up-sales-and-corporation-tax-plans
My last blog on petrol prices concluded the petrol price increase of 24% will have very little effect on inflation within the economy. However even a relatively low level of Value Added Tax (VAT) say 5% will have an immediate short term effect on inflation. This is because with a few exemptions VAT generally covers most goods and services. Therefore the impact on the cost of living will be felt unless companies reduce their prices by an amount equal to the VAT rate but that is unlikely as a Corporation Tax is also being drafted.
Corporation Tax is charged on company profits. Therefore if companies are being taxed by the Government few are going to be able to afford to give discounts to their customers and remain in business for long.
Rumours of taxation, direct and indirect, personal and corporate have been circulated before but at some point tax must come as the country’s natural resources dwindle. The Government has a fine balancing act to perform. On the one hand it must ensure there is sufficient revenue to meet its plans whilst on the other it must ensure the country remains a location of choice for international businesses and their employees.
The International Monetary Fund (I.M.F.) has recommended U.A.E. to introduce taxation in a modest way as this has many benefits for the country but as with most things, there are many interested parties and the sanctioning of these laws will probably take a long time.
Please let me know if you have any questions or comments.