Dubai: The impact of the introduction of value added tax (VAT) in the UAE and Saudi Arabia from January 1, 2018 on annual inflation rates of these countries are expected to be only a fraction of the proposed tax rate of 5 per cent, according to the International Monetary Fund (IMF).
The UAE and Saudi Arabia have confirmed the implementation of VAT starting next year. VAT being a consumption tax, tax burden is expected to reflect on the prices and consumption.
“The impact of VAT on inflation and government revenue will vary depending on the proportion of consumption in the economy and how much of the consumption base is captured by VAT. We expect a portion of VAT to be absorbed by the supply chain,” said Jihad Azour, Director of the IMF’s Middle East and Central Asia Department
A sudden spike is unlikely because of the price scrutiny that is expected to follow the introduction of VAT; competitive pressures and a potential slump in consumer spending as a result of new taxes.
According to the latest inflation figures from the IMF, consumer price inflation in the UAE eased to 1.8 per cent from 4.1 per cent in 2015, reflecting softer domestic demand and declining rents.
Despite the introduction of VAT the IMF projects an annual average inflation of 2.9 per cent in 2018 and 2.5 per cent in 2019.
