The proposed value-added tax (VAT) at a standard rate of five per cent is unlikely to have a major impact on general bank customers in the UAE, but it will negatively affect banking sector margins from next year onwards, said experts.
Analysts and tax experts said the banking industry, comprising 23 local and 26 foreign lenders offering various services through 931 branches across the UAE, should ready itself for a new era as the VAT and common reporting standards are likely to have a significant impact on their operations in the country.
They were of the view that the UAE banking sector remains well-capitalised, highly liquid and enjoys financial stability, but is yet to gear up for VAT due to be charged from January 1, 2018. They suggest banks, which recorded a 6.2 per cent rise in customer deposits at Dh1.56 trillion in 2016, should prepare themselves for VAT by raising awareness, assessing the impact of the new consumption tax as well as securing resources, planning and analysing projects to protect their margins.
Latest UAE central bank data indicates that local banks are growing in terms of assets and credit by registering an increase of seven per cent and 8.1 per cent respectively last year. The national banks assets rose to Dh2.23 trillion in December 2016 while gross credit climbed to Dh1.37 trillion.