Why have VAT?
The introduction of taxes in the UAE is part of a GCC-wide initiative to diversify regional economies. Given the overall reduction in oil prices in recent years, it has been necessary for the GCC member states to explore other revenue raising measures and reduce dependency on hydrocarbons as the key contributor to the public purse. As a result, the GCC member states have agreed to sign unified framework agreements for the implementation of VAT and Excise taxes. Member states will also implement their own domestic legislation that will govern the introduction of these taxes.
The UAE’s citizens and residents enjoy exceptional public services, such as healthcare, roads, education, parks, social services and waste management. The full cost of these services is paid for by the government . The introduction of VAT and Excise taxes will help the UAE diversify sources of revenue so that government departments can continue to deliver excellent public services and ensure a high quality of life for coming generations. This is also in line with a key pillar of the UAE’s Vision 2021 – The Sustainability of Infrastructure – more information about which can be found here.
In addition, taxation allows governments to correct certain behaviours that are detrimental to society and which cannot be left to the market to regulate. Excise taxes on products that are harmful to human health are a good example of this.