FNC Deputy Speaker Hamad Al Rahoomi. Victor Besa / The National
FNC Deputy Speaker Hamad Al Rahoomi. Victor Besa / The National
FNC Deputy Speaker Hamad Al Rahoomi. Victor Besa / The National
FNC Deputy Speaker Hamad Al Rahoomi. Victor Besa / The National

Government

UAE food reserve plans and VAT on agenda at Federal National Council

A draft law for a national food reserve will be discussed, while the finance minister will be asked to assess the impact of value added tax on the country's economy at Tuesday's session

Haneen Dajani
Haneen Dajani
UAE

February 17, 2020

  • English
  • Arabic

The UAE's Minister of State for Financial Affairs, Obaid Al Tayer, will be questioned on the effect of value-added tax on the economy at the Federal National Council on Tuesday – more than two years after the levy was introduced.

The council's deputy speaker, Hamad Al Rahoomi, will call for answers on whether the 5 per cent tax on goods and services has had a "positive or negative" effect.

Other issues on the agenda will include discussions on a new draft law on the UAE's national strategic food reserve and government support for parents of children with intellectual disabilities.

Whether positive or negative, its impact should have been measured

“I am asking if the ministry has studied and evaluated the impact of VAT, now that two years have passed since it came into effect,” said Mr Al Rahoomi.

“Has a study been conducted to measure its impact? Whether positive or negative, its impact should have been measured and we would like to see the results.

“Now I am not in a position to talk about the impact; we are expecting the ministry to have done a study and based on the results of that study we can discuss the issue."

The UAE introduced VAT on January 1, 2018, to pay for public services and continue the shift away from a dependence on oil as a source of revenue.

VAT revenue was far higher than forecast in the first year of implementation, reaching Dh27 billion compared to the government's original projection of Dh12bn, according to government data published in May of last year.

VAT has been a source of debate in council chambers in recent years.

A month before its introduction, FNC member Dr Saeed Al Mutawa asked if the government planned to raise employee salaries to address a rise in living costs.

Mr Al Tayer said at the time there were no plans for such a wage increase.

Last January, the FNC discussed concerns over shop workers not returning small change to customers after the 5 per cent tax was added to the price of products.

During the session, members are expected to pass the draft law on the strategic food reserve after discussing it and proposing amendments.

No details of the new law have been provided ahead of the session.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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