UAE to tax water and electricity at 5 per cent

Dubai: Both water and electricity will be taxed at 5 per cent from January 1, 2018, according to a set of draft executive regulations published on the Federal Tax Authority’s website on Wednesday.

According to the document, water and electricity will be treated as supplied goods, and therefore subject to a 5 per cent value-added tax (VAT).

This category of taxable goods are defined in the regulations as the “supply of water and all forms of energy including electricity and gas … whether used for lighting, or heating, or cooling, or air-conditioning or any other purposes”.

“From the beginning, it has been clear that when we talk about power and water, there’s no specific exemption or zero rating,” said Julie Bronzi, a senior VAT manager at PricewaterhouseCoopers (PwC).

“It’s not out of the blue,” she added.

According to Bronzi, until recently many people were still wondering if public entities like Dubai Water and Electricity Authority (Dewa) would be subject to VAT.

“I think it’s clear for now that there’s no exemption, which is not surprising as it’s the same in Europe, where electricity and water are subject to VAT,” Bronzi said.

The expert was quick to stress that since Wednesday’s draft executive regulations had been retracted, they should be taken with a pinch of salt.

She advised businesses and individuals to wait for the approved draft of the executive regulations, set to be released next week, according to the Ministry of Finance.

The impact of the introduction of VAT on annual inflation in the country is expected to be only a fraction of the rate of 5 per cent, according to the International Monetary Fund (IMF), tax practitioners and economists.

However, in a note from August 2017, chief economist of Abu Dhabi Commercial Bank (ADCB) Monica Malik wrote: “We estimate that VAT could add about 2.7 to 3.7 percentage points to headline inflation in the first year post introduction. However, the introduction of the tax in other countries shows that it can take a few months for the potential rise in prices to fully filter into the inflation data.”