The new tax will act as a way to increase non-oil revenues with finances strained in the GCC due to low oil prices.
Younis Al Khouri, Under-secretary at the UAE finance ministry, said GCC governments were planning for early, simultaneous adoption, adding that the government was aiming for a 5% rate across the board but parts of 7 sectors — education, health care, renewable energy, water, space, transport and technology — might get special treatment, he said in a joint interview with Reuters and Zawya. “There might be areas, but currently, as the Ministry of Finance, we are not aiming towards exemptions, which could create some leakages, some confusion.”
He added that the government expected around Dh12 billion ($3.3 billion) of revenue from the tax in its first year. That would be about 0.9% of the UAE’s GDP of $371 billion in 2015, official data shows.
From the start, authorities will seek to register all companies with annual revenues exceeding $100,000 for the tax and anticipate 95% or more of companies to comply in the initial stage.
However, a report in Gulf News said economists and officials in some countries have said privately that simultaneous introduction in all countries may not be feasible because of the complexity of creating the administrative infrastructure to collect the tax and the difficulty of training companies to comply with it in a region where taxation is minimal. Revenues from the tax may increase gradually with economic growth but the government is at present not considering any increase of the tax above the intended 5% and would not raise it in the future without a thorough study of the economic and social impact, Al Khouri said.
To broaden its fund-raising options, the UAE has been working on a debt law that would allow the federal government to issue sovereign bonds. The minister said authorities had wanted the law to pass at the end of last year but unspecified issues within the ministry had prevented this. “The sooner for the UAE, the better it will be for the country,” he says.
Once the law is passed, the federal government will aim to start issuing debt within 6 months, but its minimal budget deficit means the debt will not be used to fund the budget. Instead, it will be issued in conjunction with the central bank to manage liquidity in the banking system, he said.
No specific date has been confirmed as to when the law, which was initially scheduled to be finalised by the end of last year, will be passed.