VAT is the taxation that the UAE had to have

Nobody likes to introduce new taxes, but Peter Hellyer says doing so in an orderly and well-planned manner is the best approach.

A consumption tax is one way to increase government revenues at a time of low oil prices. (PSarah Dea / The National)

A few weeks ago, writing about the collapse in oil prices and its effect on the local economy, I paid tribute to the farsightedness of the UAE’s founding fathers, the late Sheikh Zayed and his colleague, the late Sheikh Rashid of Dubai, for their insistence on the need to diversify the country's economy.

I noted then that this had made it easier to tackle the economic challenges of the present. We’re in a far better situation than some other large oil and gas producers who failed to promote diversification in the past and are now suffering the consequences.

All governments should plan ahead, not just for a few years but for the longer term, if they are to provide for future generations. That applies not just to the facts and figures of economic diversification but in other fields as well, such as the promotion of research and development and adaptation to technological change.

Innovation, currently an Emirati buzzword, is an essential part of that process. Sadly, not all governments adopt such an approach. Instead, they take radical steps at short notice, rather than planning ahead, with these often having unanticipated, negative consequences. Were they businesses, they might be headed for bankruptcy.

With that in mind, I must, somewhat reluctantly, applaud the Minister of State for Financial Affairs, Obaid Al Tayer, for spelling out so clearly that all UAE residents are going to have to get used to the introduction of a value added tax (VAT) by the end of 2018.

That muted praise doesn't mean that I'm really looking forward to it. Like most people and most businesses, I am accustomed to living in what is, for most purposes, a tax-free environment. Needs must, however, and there's really no alternative if the Government is to remain able to provide the services to which we have all become accustomed and to continue to plan for the future. It's essential that more revenue is raised.

Mr Al Tayer may not particularly enjoy going down in history as the minister who introduced a nationwide tax, albeit an indirect one. In the long run, though, he's likely to receive plaudits rather than brickbats.

Many decades ago, my great-uncle, then states auditor for the government of the Channel Island of Jersey, reviewed the island's annual accounts, noted the increasing deficit, and insisted that income tax would have to be introduced for the first time if the government was to be able to continue to operate. Having made the government bite the bullet of introducing direct taxation, he continued as a highly-valued auditor for another 20 years.

My applause for Mr Al Tayer, albeit reluctant, is primarily for the way in which he and the country's leadership have given us plenty of time in which to become accustomed to the idea of a VAT.

There’ll be all sorts of inconveniences for businesses. An effective collection system has to be devised. Machines and paperwork will need to be updated. With nearly two years ahead of us before the tax is introduced, however, there is time to come to terms with the impending change before it arrives.

However unpalatable the meal may be when the VAT is introduced, at least we’ll all be ready for it. One wishes that the introduction of the new “green levy” on quarrying companies at the beginning of February had been done in the same way. Instead, they and their customers received only a few weeks warning, throwing the industry into near-panic.

When new taxes and levies are being planned, it is, surely, better to give everyone time to prepare. Sugaring the pill? Perhaps. But, as any doctor knows, that's often a good way of getting an unwilling patient to swallow the medicine.

Peter Hellyer is a consultant specialising in the UAE’s history and culture