Dubai Customs and the International Monetary Fund (IMF) are jointly conducting a study that seeks to identify ways and means to facilitate the smooth implementation of a Value Added Tax (Vat) regime in GCC countries.
The study is being conducted in coordination with the UAE Ministry of Finance.
Dubai Customs is part of a task force constituted to conduct the study on behalf of the UAE Government. The UAE Federal Government was authorised by the secretariat-general of the Gulf Cooperation Council to undertake the study after it submitted detailed suggestions regarding the implementation of Vat in the region. The task force will closely study various options before putting forward its final suggestions and recommendations to the secretariat-general.
The IMF had recently released a study calling for implementation of the new tax system in two stages. The report recommended levying of tax on selected goods such as tobacco, cars and electronic items and the removal of customs duty on all imports, with the tax being collected directly from the distributors, agents and wholesalers. At a later stage, this process will be further modified to ensure that the tax is applied only at the point where the product is actually sold to the customer.
Abdul Rahman Al Saleh, executive director, business support and services, Dubai Customs, and head of the task force conducting the study on Vat implementation, said, “Global and regional economic systems have undergone a major transformation, requiring the UAE to adopt a fresh trade approach that is in step with the changed economic reality. The UAE is seeking to sign mutually beneficial free-trade agreements with several countries and influential economic blocks, and is already in discussions with the US, the European Union (EU), Australia and China. The proposed changes to the country’s economic system will make the UAE ready for these agreements.”
Once the trade agreements took effect, Dubai Customs would be required to substantially bring down the customs duty on various items, making it imperative to look for other sources of revenue. This had influenced the move towards a non-direct tax regime, Al Saleh added.
The IMF in its primary report had underlined the importance of defining all taxes being paid by the private sector and the need to bring them under an integrated tax system. The report called for sector-wise categorisation of customs tariffs, so that tax rates could be fixed accordingly. The IMF report also laid emphasis on the need to ensure that the transformation to the new tax system did not lead to an increase in prices, and suggested a timeframe for GCC countries’ shift towards a non-direct tax regime.
Dubai Customs’ efforts towards a liberalised trade regime come at a time when the World Customs Organisation (WCO) is urging countries to remove trade barriers, including customs tariffs, in order to facilitate free trade.
