The introduction of a five per cent value added tax in the UAE from next year is not only a righ step in right direction to diversify revenue generation sources, but the move will also help multinational and foreign companies operating in the emirate to skip higher rate in their home country, Khaleej Times has learnt.
The average VAT rate in the world is around 15 per cent and it goes as high as 27 per cent in Hungary among the OECD nations. Multinational and foreign companies operating in the UAE will prefer to pay low consumption tax here and avoid higher charges in their home country as the same tax cannot be levied twice as per international law, according to the experts.
Well-placed sources that did not wish to be quoted say multinational companie (MNCs) operating in the UAE are happy with the UAE government’s decision to introduce VAT in the country with low rate as it will help them in saving money by avoiding a higher VAT rate in their home country.
“The UAE government has already been adopting serious measures to diversify its revenue sources in line with the suggestions of international institutions such as the IMF that recommended new taxation measures to reduce dependence on oil,” according to the sources.
Last week, the Ministry of Finance acknowledged that it has benefited from some suggestions by the International Monetary Fund (IMF) especially on spending cuts and revenue increase programmes.
Younis Haji Al Khoori, under-secretary of the Ministry of Finance, said the ministry has benefited from certain suggestions, including those on spending cuts, revenue increase and financial policies co-ordination programmes. In a statement to Wam, he said that these suggestions are being applied, based on the best international practices.
Hamad Buamim, president and chief executive officer, Dubai Chamber, said the introduction of VAT will create a more stable revenue source for the government, which will instill confidence in the UAE's economy and business environment.
“I think it’s important for business to use this time to learn about the requirements and adjustments that will need to be made in preparation for the VAT. It’s important to understand that VAT is a tax on consumption which may or may not be passed on to the consumers depending on the type of service or product in question and the competitive landscape,” Buamim told Khaleej Times.