Rida shares her opinion on the proposed value-added tax in the UAE, which has been approved by the cabinet.

The concept of paying tax on things we purchase is something of an alien concept to those of us who have been brought up in the UAE. Yet, amidst a changing economic and political climate appears the very real consideration of the implementation of VAT (Value-added tax). Combine the dizzying growth of the UAE, both demographically and economically, accompanied with a strong need for further infrastructure, and fluctuating oil prices, the introduction of a taxation program would further benefit the country, and in turn prove to be advantageous to the residents themselves.

Let’s first go back to the beginning in order to get a clearer picture. What exactly is a VAT? A quick Google search will tell you that Value-added tax is a form of taxation that is paid on goods and services, imposed all along the production and distribution chain and is a characteristic feature of several, full-fledged economies in the world. The brunt of it would be borne by the final consumer, which would include you and I. Basically, if you were to purchase a bottle of water priced at AED 1, and there is a VAT of 5%, you would end up paying AED 1.05.

In theory, its purpose is to become a source of state financing, and ideally would be a form of a stabilizing mechanism in a country where the primary revenue is dependent on a product that is highly volatile, especially taking into account its recent lowered prices i.e.: oil.  In turn, the government would then use the money acquired via VAT to further boost the economy, one byproduct of which might be increased employment opportunities, and a more flourishing economy.

However, although the impact of a small percentage of VAT in the UAE might be little to none, a point of concern would be the kinds of goods and services upon which a tax would be levied. Would goods and services of the luxury variety be the only ones with a VAT? The imposition of a tax on staple food items or other basic necessities, for example, could prove to be a strain on low-income individuals and families. What about education? With already rising school and college tuition fees, even a 5% tax on educational services would contribute to the growing cost of living in the UAE. If the purpose of a tax reform is to improve the lives of those residing in a country, then it remains to be seen if this increase price will be handled by all income groups.

The views expressed in the article above are of the author alone. B-Change does not profess or support the views of the author.