The United Arab Emirate is set to introduce and begin the collection of Value Added Tax (VAT) and Excise Tax in the territory.
While the collection of VAT will commence on the 1st of January 2018, the collection of the Excise Tax is slated to commence in the fourth quarter of 2018.
The introduction of these new taxes was announced in the The Tax Procedures Law in August 2017.
The Tax Procedures Law laid down the foundation for the planned UAE tax system, regulating the collection of taxes and defining the role of the Federal Tax Authority.
This is a consumption tax imposed on a product at each stage of production, before the final sale while Excise Tax is a production Tax imposed on the manufacturer, not the customer, during the creation of a product. But as with VAT, the manufacturer again passes the buck on to the consumer by including it in the product’s price.
There is a list of just under 100 items or categories of goods and services that will not be subject to tax, these are basically non-essential consumer items. Namely, anything other than basic food and essential commodities, such as medicines or hospital and school bills
The UAE, along with the other five Arabian Gulf states, agreed to slap VAT and excise taxes GCC-wide as part of measures aimed at shoring up government income, diversifying government revenues as economies adjust to lower oil prices and ensuring more efficiency in the economy. The IMF said in October 2015 that the Gulf states would have a combined fiscal deficit of between 2015 and 2019 that would exceed US$700 billion if they did not undertake reforms.
VAT is expected to yield Dh12bn in the first year of its implementation and up to Dh20bn during the second year to the Emirate.
The introduction of the VAT and Excise taxes the Emirate which is a major destination for tourist and bargain hunters is expected to have significant effect on the economy of the Emirate, though the degree if the impact cannot for now ascertained.