Experts allay inflation fears

VAT at five per cent, as recommended by the World Bank and the International Monetary Fund, is modest by global standards, and will not stoke inflation for the common man as vital household expenditure items are exempted from its ambit, tax experts said.

The exempted items include 100 types of staple food, and other essential service sectors such as healthcare and education.

VAT will have an effect on the buying power of tourists as they will have to pay duty tax again on certain goods in their country of origin.

According to estimates by the International Monetary Fund, a VAT rate of five per cent would generate additional revenue equivalent to about 1.5 per cent of the UAE’s gross domestic product.

Given that the UAE economy is forecast to grow to $440 billion in 2019, the VAT contribution would be approximately $6.5 billion, according to Alp Eke, senior economist at the National Bank of Abu Dhabi.

Since VAT does not exceed the rate of five per cent, commodity price levels will not increase substantially for citizens.

According to experts, when a business charges VAT on a sale, it can reclaim VAT they have paid on their purchases. The difference between what they have charged on sales and paid on purchases is required to be paid to government.