UAE cost of living: education, 94 food items, healthcare to be exempt from VAT

Ministry of Finance official says the target for introducing the tax is three years.

Younis Haji Al Khoori is undersecretary of the UAE’s Ministry of Finance. Razan Alzayani / The National

Key food items, healthcare and education services will be excluded from a proposed Gulf wide value added tax (VAT) scheme, according to Younis Haji Al Khoori, undersecretary of the UAE’s Ministry of Finance.

The new region wide VAT system, which may come into effect as soon as late 2018, would be one of the first direct taxes in the region, as governments look to shore up revenue streams in the wake of falling oil prices.

Gulf finance ministers, who met to discuss the proposed new tax in the past days, have agreed VAT levels on several classes of goods and services, said Mr Al Khoori, on the sidelines of a media event in Abu Dhabi on Monday.

“We have had a meeting only a few days ago, we have agreed now on key issues,” Mr Al Khoori said.

“We’ve agreed to exempt some of the foodstuffs [from VAT], approximately 94 items. We’ve also agreed to apply a zero rate on healthcare and the education sector,” he said, stating that social services would also be exempt.

However agreement has yet to be reached on “one or two” high transaction volume sectors.

“We have been looking at difference examples and what could be the alternative [approaches],” said Mr Al Khoori, declining to name them.

Gulf states have mulled the introduction of VAT for more than 10 years as a means of increasing government revenues. Discussions have gained momentum in recent months after the collapse in oil revenues since June of last year.

The six countries adopted a draft VAT framework in May, with each state agreeing to pass its own domestic VAT law based on common principles across the six states.

The international Monetary Fund (IMF) has urged Gulf states to introduce taxes, trim spending, cut subsidies and introduce reforms to help balance their budgets and deal with the low oil price environment.

The fund downgraded the region’s growth forecast for 2015 to 3.3 per per cent in October, and projected a wider fiscal deficit of 13 per cent for the region because of the oil price slump, compared with 8 per cent forecast in its May report.

Mr Al Khoori said that governments were targeting a three year timeline for the introduction of the tax, but this was subject to the signing of a comprehensive agreement.

“We’ve always stated that from the [signing of] the agreement we need 18-24 months,” he said.

“So it all depends on the final agreement date, from that date we need two years for implementation.”

Seperately, Mr Al Khoori said that the implementation of a GCC-wide customs union still faced a series of obstacles.

These issues included the treatment of free trade agreements signed by Bahrain and Oman with the USA, differing import tariffs charged by the UAE and Saudi Arabia, and complications arising from the UAE’s Agency Law.

Mr Al Khoori said that the customs union was “close” to becoming a reality, but declined to give any timeline.

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