The member states of the Gulf Cooperation Council (GCC) are all aware that they have to put their financing on to a more sustainable basis, which means moving government income away from an almost complete reliance on direct revenues from the sale of oil and gas, to taxation of a diverse economy. This is designed to set up a system for sustainable government revenues that will be in place long before oil and gas reserves start to run out, so there is no sudden shortfall in government revenues.

This is why, all GCC states have agreed to introduce a Value Added Tax in 2018 and the UAE has moved effectively to implement this change by establishing a new authority to collect data, information and statistics related to federal taxes. President His Highness Shaikh Khalifa Bin Zayed Al Nahyan issued a decree on Monday to set up the Federal Tax Authority (FTA) that will be responsible for setting up and maintaining records on taxpayers and on taxes paid, as well as issuing guidelines and clarifications to taxpayers.

The authority will coordinate with the federal government, local governments and taxpayers on all matters related to taxes and related fines. It will represent the UAE in regional and international meetings and conferences concerning taxes, in addition to inspecting taxpayers’ records and documents, reviewing tax returns and auditing reports submitted to the authority.

There are already some federal taxes, but the major effort of the new authority will be to monitor Vat. There is a large task to prepare the commercial world to add the tax to the price charged for any goods and services.

This means that companies will have to have the accounting arrangements in place so that they can record what they have charged and also tell the government what they have charged to the tax that is deemed to be correct. This is a significant difference from the current more private arrangements, under which a company and its customers have no duty to inform anyone about the costs, far less be legally liable for doing so. So while the government is preparing for the imminent arrival of Vat, the commercial sector needs to do the same.

This means checking internal accounting systems to make sure that they are robust enough to cope with Vat and estimating the amount of time and manpower that will be required to be legally compliant.