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The UAE will not delay the introduction of Value Added Tax (VAT), or banks and there are no salary increases in the 2018 budget, says Minister of State for Financial Affairs Obaid Al Tayer.
He told members of the Federal National Council that VAT, which becomes effective in less than two weeks, will have a minor impact on investors and consumers.
“So if a person spends Dh 5,000 a month, it will only affect by Dh70, and if he spends Dh 10,000 a month it will affect him by Dh 140," he said.
The tax would cost individuals a maximum of 1.4 per cent extra per year and investors just 0.68 per cent. Gross domestic product will be impacted by 0.42 per cent, forecast to drop to 0.11 per cent in the medium term.
He added that all banks and companies have been in the loop about the upcoming levy since the Gulf Cooperation Council agreement to apply it was signed in December 2015.
“It is not a surprise that we will be adding VAT,” he said.
“The government does not like to postpone anything, so it is not possible to pardon any party from implementing the taxes law, and there will be no favours given to anyone,” the minister added.
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He was responding to concerns voiced by FNC members regarding a statement made by last month Abdul Aziz Abdulla Al Ghurair, chairman of UAE Banks Federation, when he said banks and insurers are not ready to apply VAT.
“We call to postpone implementing the VAT to give time to all the sectors to implement it correctly, whether in banking, insurance, or other sectors," he told reporters in November.
Minister Al Tayer, however, noted that “we have 34 (international) banks who used to apply VAT in their countries and 22 national (banks), some of which have branches abroad in countries that apply (VAT), so their regulations already include how to apply VAT” .
“So let us be clear with this: all the financial systems followed by banks already includes VAT procedures, they only need to be activated.
“We should look positively at this: small and medium sized companies who never used to study their accounts or budgeting, now will regulate their work.”
FNC member Hamad Al Rahoomi asked how many companies already registered for VAT, but the minister did not answer.
Council members also proposed that the government look into increasing salaries if VAT proved to have a massive negative effect on consumers.
This followed the minister stating that “the draft law for 2018 federal budget, which your council will review today, does not include any salary increases".
“The government already introduces increases to the basic salary in a regular manner, and it could be higher than the effect percentage of VAT which I mentioned today,” the minister said.
The minister said VAT will not include health and school education, and it will not be applied on real estate yet.
He also warned against tax evasion as the penalties, already quite hefty, could be increased to encourage compliance.
Nonetheless, Dr Saeed Al Mutawa, a Sharjah member, insisted that the government conduct a statistical study on the monthly spending and consumption rates of nationals and how they will be affected by the inflation resulting from VAT.
And, based on those results, to look into raising salaries or issuing allowances in accordance with the resulting inflation.
Priority should be given to retirees and people who benefit from the ministry of community development, Dr Al Mutawa noted.
The council voted in favour of this proposal.