Implementation of VAT ‘spurs GCC economies’ in 2018

The levy could raise revenues of up to 3 per cent of regional non-oil GDP, GCC Federation says

Cash refunds for tourists reclaiming VAT have been set to a Dh7,000 limit. Silvia Razgova / The National
Powered by automated translation

The introduction of value added tax had a positive impact on economic growth and development in the GCC in its year of implementation, a report said, as the UAE and Saudi Arabia come up on its first anniversary and Bahrain prepares to roll out the levy in 2019.

Once implemented, a GCC-wide VAT could generate revenues of between 1.5 per cent and 3 per cent of the six-country economic bloc's total non-oil gross domestic product from next year, the report from the Federation of GCC Chambers said, citing earlier figures from the International Monetary Fund.

In May, the global lender said that the introduction of VAT in the UAE and Saudi Arabia had gone “smoothly” and had little effect on inflation.

GDP growth in the GCC is expected to reach 2.4 per cent this year and 3 per cent in 2019, the IMF said in November, raising its previous forecasts announced in July on the back of higher oil prices and a slower pace of consolidation, as well as new revenue-raising measures including VAT.


Read more:


In the UAE, GDP growth is estimated to rise to 3.7 per cent in 2019, while Saudi Arabia’s economic growth is forecast to rise to 2.4 per cent next year from 2.2 per cent in 2018.

The report from the Federation of GCC highlighted the outcome of VAT, and its contribution to the ongoing economic diversification efforts across the region to secure the funds required to finance infrastructure projects and public services, the UAE’s state-run news agency Wam reported on Friday.

In the UAE and Saudi Arabia, the 5 per cent VAT, which was introduced on January 1 this year, is providing a “new source of income that will continue to be used to provide high-quality public services and help the government reduce its dependence on oil and other hydrocarbons as a source of revenue,” the chamber said.

The introduction of VAT in the UAE could raise up to 1.7 per cent of the country’s GDP, rating agency Moody’s said in a paper in September.

Meanwhile, Bahrain is expected to introduce a 5 per cent VAT in January, in line with the GCC-wide VAT agreement signed in 2017.

Bahrain’s VAT legislation has been in circulation for a few months but the full details of the regulations are yet to be revealed. Most businesses in Bahrain will not need to register for VAT from January. Only those with sales exceeding 5 million Bahraini dinars (Dh48.8m) will have to do so, by December 20 next year, according to the country’s National Bureau of Taxation.