VAT to improve quality of life in the long run

Details are still trickling in and nervousness is palpable among the residents and business owners as they prepare for the new tax regime in the UAE. It is normal, to say the least, especially when changes as monumental as this kick in. What’s worth celebrating is that the value added tax, or VAT, will bring transparency to the system and make businesses more accountable. The new regulations mandate compliance and will leave a paper trail, which will allow better governance. It all bodes well for the economy, and would be in the best interest of residents and business owners. The Federal Tax Authority has been forthright in addressing issues and eliminating elements of uncertainty, which is why we are still seeing clarifications and notifications coming in. As reported in the Khaleej Times today, parking in residential buildings too would be subject to VAT as are myriad other goods and services. Clarity is still pending on a host of sectors such as medical equipment and medicines. In time, these will also be announced.

VAT is one of the most significant reforms in decades, and eventually it is going to be an important lever for the government to diversify its sources of revenue and decrease its dependence on oil. In 2018, collections from VAT are expected to make up about 26 per cent of the total revenues of the government at around Dh13 billion and by 2019, experts suggest this figure would rise to about a third of the total revenues. This, of course, would be a significant financial cushion for the government, and allow it to invest resources on important sectors and improve the quality of life in the UAE. But beyond these staggering numbers, the reform assumes greater significance in positioning the UAE as a globally competitive nation with a diversified economy. Countries in the Gulf had been riding high on high oil prices for decades, and now their decision to diversify will pave the way forward. We might face some teething issues and anxiety as we dot the i’s and cross the t’s, but overall the move is in the best interest of all.