The UAE will not immediately follow through on IMF recommendations related to VAT increases, a senior UAE minister said. Image Credit: Ahmed Ramzan/Gulf News

Abu Dhabi: The UAE ruled out any increase the value added tax (VAT to be accordance with recent IMF recommendations.

“We are not concerned about the recommendations to increase the value-added tax,” the UAE’s Minister of State for Financial Affairs, Obaid Al Tayer, told Gulf News.

The International Monetary Fund had recommended a doubling of the VAT.

According to economists, before adopting any new IMF recommendation to increase the value-added tax, it is necessary to evaluate the pros and cons of the past two years since VAT was implemented and develop solutions that can make the scheme more effective to economy and society alike.

Al Tayer was questioned at the Federal National Council on the effect of VAT on the economy, more than two years after the levy was introduced. The first deputy speaker, Hamad Al Rahoumi, sought answers on whether the 5 per cent tax on goods and services has had a positive or negative impact.

Al Rahoumi asked whether a study had been conducted to measure VAT's impact. “Its impact - whether positive or negative - should have been measured by now,” he added.

The UAE introduced VAT on January 1, 2018, to pay for public services and continue the shift away from a dependence on oil as a source of revenue.

Beating forecasts

VAT revenues have reached Dh27 billion, far higher than was forecast in the first year of implementation. Initial projection was for Dh12billion, according to government data published last year.

Al Tayer said only 2018 data on VAT was available, which is insufficient to make a credible assessment of the tax impact. “The UAE introduced VAT on January 1, 2018, [a period] which is insufficient to make in-depth analysis of the VAT impact with reasonable credibility, considering that the 2019 data has not been issued as yet,” Al Tayer told the House.

Al Tayer said 2018 indices were for a very short period, which ctoo annot gauge the VAT impact. “We need at least three to five years to study the impact of VAT on gross domestic product (GDP).

The minister also noted that geopolitical conditions, a drop in oil prices, coronavirus and sanctions imposed on certain countries have to be taken into account when assessing the VAT impact.

Gains to GDP

Al Tayer expected that 2020 will see an increase of nearly Dh37 billion in GDP to Dh1.50 trillion.

Al Tayer said GDP last year was Dh1.46 trillion and inflation at 1.5 per cent, while GDP in 2018 was Dh1.72 trillion and inflation was 3.69 per cent.

“In 2017, GDP was Dh1.41 trillion and inflation 1.97, while 2016 GDP was Dh1.41 trillion and inflation 1.61 per cent,” Al Tayer said.