Many enquiries were raised by citizens and residents alike questioning the possibility of increasing the value-added tax (VAT) rate from 5 per cent to 10. Later on, it turned out that these were just baseless rumours.
Although there were no clarifications at that time, the response to the rumours was based on an understanding of the economic situation over nearly four decades as well as on the decision-making processes in the country, which takes into account all possibilities. It was not long before the UAE Cabinet decided not to impose any new taxes for the next three years, which is a sound decision that sends a strong message to the markets and also responds to the tax-hike rumours.
The Cabinet’s decision is important and for many reasons. First, it strengthens the confidence of both consumers and the business sector. Everyone is now reassured that there is to be no tax increase and can confidently chart their investment programmes. This in turn creates some kind of stability that will attract more investments.
Second, the decision reveals how transparent and clear the decision-makers have been and this will protect the country’s economic and commercial standing, given its status as a global hub for trade and finance. This has created a sense of satisfaction among consumers and the business sector and strengthened confidence in the country’s markets.
It also comes at a time when global trade is facing the possibility of a trade war between the world’s largest economies as a result of decisions here and there. This includes the recent decision taken by President Donald Trump to impose additional tariffs on his country’s steel and aluminium imports, thus disadvantaging the exports from China, the European Union and other countries to the US.
The US decision has been met with threats of countermeasures by China and the EU, with the latter planning to impose additional tariffs on its imports of US clothing and products. China is expected to take countermeasures to protect its interests, which means the US is likely to take even more protective measures.
GCC aluminium exports to US
This means the troubled conditions for trade will result in repercussions for various countries and they need to deal with the ramifications or reduce any potential damage at the very least. The GCC countries, for example, export about 30 per cent of their aluminium to the US and these will be covered by the new US measures and force them to search for alternatives, reduce costs or take protectionist decisions.
This depends on the nature of the Gulf aluminium industry and its position in the international commodity markets. At the same time, the US president hints at the possibility of taking other decisions as part of his economic policies, through which he will reconsider many of the economic and trade agreements signed by previous administrations and were, as he suggests, unfair to his country. This means stoking the fires of crisis in international trade relations.
In light of these developments, the UAE’s decision on no further tax hikes reaffirms its role as a guarantor of trade and investment and that economic decisions are aimed at providing more facilities for investors and businessmen. This has contributed to transforming the country’s markets into a global hub for trade and transport and for re-exports, which is gaining more importance thanks to the changes in the transport sector.
The Cabinet’s decision is expected to strengthen this position further and strengthen the business competitiveness of the country on the global stage.
Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.
