UAE's new tax regime one step closer

Soft drinks will be targeted along with tobacco and other goods under the proposed VAT regime to boost a healthier lifestyle. Akos Stiller/Bloomberg

The overhaul of UAE’s tax system has begun and the Arab world's second-largest economy, may be among the first in the Arabian Gulf region to begin the journey of introducing consumption taxes for the first time.

A 5 per cent value-added tax will be implemented on January 1, 2018 and excises tariffs by the fourth quarter, Khalid Al Bustani, the director general of the Federal Tax Authority confirmed yesterday.

Only Saudi Arabia has published a VAT draft law, which was endorsed by the country’s consultative Shura Council. The kingdom is the first Gulf country to start with levying 100 per cent excise tax on tobacco products and energy drinks and a 50 per cent tax on carbonated drinks, a process that began in June. That will hopefully help curb obesity, change consumption patterns and promote healthier lifestyles.

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Saudi Arabia and the UAE may be the first two Gulf countries to implement VAT next year, with other states having a maximum period until the end of next year to join the tax club.

All Gulf countries have signed an agreement to introduce VAT and excise taxes, measures that are needed to cope with the low oil price era that has slashed the government’s energy revenue.

The UAE is expected to publish the VAT and excise tax laws in the third quarter of this year and bylaws for implementing the levies in the fourth quarter of this year. The UAE is also introducing 100 per cent excise tax on tobacco products and energy drinks and a 50 per cent tax on carbonated drinks.

But the real test for the next tax era will start in September, when the authority will start registering big companies for VAT at first and firms liable to pay excise tax. Companies with an annual turnover of Dh375,000 or more should register or face penalties.

The authority, which was created last year, would like to register an estimated 350,000 companies subject to VAT and 250 companies subject to excise tax by the end of the year to ensure a smooth process of implementation.

Introducing taxes is never easy, but as a saying goes: a journey of a thousand miles begins with a single step and the UAE will take that step come September.