IMF backs UAE tax plan
Preparations for the introduction of VAT across the UAE have been backed by the International Monetary Fund (IMF).
A recent IMF report entitled Article IV Consultation with the UAE, said the IMF "welcomed the preparations to introduce a Value Added Tax system at the federal level."
Despite criticism a number of analysts believe the impact of an indirect tax would not be as dramatic as many believe.
"The UAE is strong enough to absorb an indirect tax," said Milan Sallaba, director and office head of Oliver Wyman - global strategy and operations consultants. "If you look in general there are already a lot of hidden taxes in the UAE, such as housing fees for rentals and Salik. VAT would be but another tax.
"VAT is indirect tax, which in my strong opinion is a much preferred tax to a direct taxation of salary or property tax," he continued.
"The overall impact will depend on what the other economies in the Gulf are doing. If the UAE were to introduce VAT and Qatar and Bahrain, didn't follow suit, for example, the country's relative competitiveness would suffer. At the moment the UAE is considered to have the upper hand."
David Butter from the Economist Intelligence Unit, who specialises in the Middle East, told Arabian Business that the IMF's support of VAT wasn't surprising. "Generally the IMF would recommend VAT as an effective means to provide that sort of access funding for a government. They have been encouraging a number of Gulf governments to look at VAT for some time now following the drop in oil prices a few years ago, although not necessarily in the UAE.
"The main argument behind it is to provide a different set of instruments for fiscal policy so as to lessen direct dependence on oil revenue for government activities. From a government's point of view it is an efficient way to get hold of fiscal receipts," he added.
The report also revealed that a National Bureau of Statistics (NBS) and a Federal Credit Bureau would be introduced by the end of this year.
"Efforts to address the weakness of economic statistics at the national level have intensified. Work is underway to improve consumer price data and to establish the NBS by the end of 2007," the report said.
The introduction would be followed by several statistic surveys which are currently being prepared. Planned studies include one on household income and expenditure in line with the UAE's efforts to formulate a consumer price index (CPI) to measure real inflation, according to the report.
The IFM report also agreed that the current dirham peg to the dollar has served the UAE well: "The exchange rate of the dirham is in line with fundamentals. Further structural reforms would help to sustain the UAE's competitiveness."
The commitment of the UAE authorities to working closely with other GCC member countries to reach a consensus on the appropriate future exchange rate regime was also noted. Source
A recent IMF report entitled Article IV Consultation with the UAE, said the IMF "welcomed the preparations to introduce a Value Added Tax system at the federal level."
Despite criticism a number of analysts believe the impact of an indirect tax would not be as dramatic as many believe.
"The UAE is strong enough to absorb an indirect tax," said Milan Sallaba, director and office head of Oliver Wyman - global strategy and operations consultants. "If you look in general there are already a lot of hidden taxes in the UAE, such as housing fees for rentals and Salik. VAT would be but another tax.
"VAT is indirect tax, which in my strong opinion is a much preferred tax to a direct taxation of salary or property tax," he continued.
"The overall impact will depend on what the other economies in the Gulf are doing. If the UAE were to introduce VAT and Qatar and Bahrain, didn't follow suit, for example, the country's relative competitiveness would suffer. At the moment the UAE is considered to have the upper hand."
David Butter from the Economist Intelligence Unit, who specialises in the Middle East, told Arabian Business that the IMF's support of VAT wasn't surprising. "Generally the IMF would recommend VAT as an effective means to provide that sort of access funding for a government. They have been encouraging a number of Gulf governments to look at VAT for some time now following the drop in oil prices a few years ago, although not necessarily in the UAE.
"The main argument behind it is to provide a different set of instruments for fiscal policy so as to lessen direct dependence on oil revenue for government activities. From a government's point of view it is an efficient way to get hold of fiscal receipts," he added.
The report also revealed that a National Bureau of Statistics (NBS) and a Federal Credit Bureau would be introduced by the end of this year.
"Efforts to address the weakness of economic statistics at the national level have intensified. Work is underway to improve consumer price data and to establish the NBS by the end of 2007," the report said.
The introduction would be followed by several statistic surveys which are currently being prepared. Planned studies include one on household income and expenditure in line with the UAE's efforts to formulate a consumer price index (CPI) to measure real inflation, according to the report.
The IFM report also agreed that the current dirham peg to the dollar has served the UAE well: "The exchange rate of the dirham is in line with fundamentals. Further structural reforms would help to sustain the UAE's competitiveness."
The commitment of the UAE authorities to working closely with other GCC member countries to reach a consensus on the appropriate future exchange rate regime was also noted. Source
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