Transparency, GDP growth up next

Analysts believe Dh12B UAE govt will collect from new tax will be pumped back for infrastructure

The implementation of value added tax will clean up anomalies in the accounting practice, further improve credibility of the UAE on the global scale as a more transparent country and substantially increase the country’s GDP growth, according to industry executives and tax experts.

Analysts believe that the Dh12 billion the UAE government will collect from VAT will be pumped back for the development of infrastructure, which will nearly double the country’s economic growth.

“Most of the world has implemented VAT. The new tax will only create more transparency and credibility for the UAE as a country as the companies’ accounts and audits will be done properly and transparently. If you look into the impact, it is five per cent. It is not on the buyer but on the consumer. If you look at the total impact of VAT on consumers, it is likely to be 1.18 per cent on the value of the goods,” says G.R. Mehta, managing director of Kaanee American International Tobacco and former chairman of the Institute of Chartered Accountants India – Dubai Chapter.

“For the first time, the UAE has become a tax regime. Whether we like it or not, this will clean up the anomalies in accounting, create more transparency and international acceptance, rather than creating an image of tax heaven,” Mehta said during an interview.

He was speaking during an interactive session held by Khaleej Times and the ICAI with support of Qadi Accountants, a boutique advisory firm that provides services ranging from audit, accounting, advisory and taxation. More than 15 tax experts responded to ICAI members’ queries on different sectors.

“VAT will bring in confidence of the outside world into the UAE’s system of accounting and transparency. Whereas earlier there was no need for a book of accounting because there was no taxation. So I think it will improve credibility of the country and more investors are likely to come in,” Mehta added.

Naveen Sharma, chairman of ICAI – Dubai Chapter, says five per cent is nothing when compared to European countries, and the US where VAT has gone as high as 25 per cent.

“VAT will improve internal controls and the government will have much more accurate data that will have help to focus on the growth of the industries – such as how much import is coming, the total value of inbound tourism spending, the money people spending on buying air tickets and how much residents spend on consumption of goods and services,” says Sharma.

The Federal Tax Authority has spared some of key sectors such as healthcare, education, international travel and life insurance, etc, from VAT. The implementation of VAT is projected to generate Dh12 billion in revenues for the government in the first year of operations and Dh20 billion in the next year. As part of the GCC agreement, Saudi Arabia will join the UAE to introduce VAT from today.

“If we are using Dubai roads, public parks and infrastructure, I don’t think paying two or 2.5 per cent more as inflation is bad as we enjoy the best quality lifestyle that we have now,” says Sharma.

He added that VAT will direct government policies to the betterment of the residents. “Dh12 billion is a lot, which will be pumped into the development of infrastructure, which will double the rate of growth that we have seen in the past.”

According to a report by the Institute of Chartered Accountants in England and Wales and Oxford Economics, the UAE will record an accelerated growth in 2018 to 3.6 per cent from 1.7 per cent in 2017. The momentum will continue with GDP growing at 3.6 per cent in 2019.

“GDP will grow because of the positive side of VAT. Nearly 99 per cent of the countries have VAT or other types of taxes, but their rates are very high. For example, in India, it is 18 per cent but here it is five per cent. Everyone doesn’t mind paying taxes as long as the government is honest in deploying back the money they are taking.”

Jatin Harjai, partner and founder J. Harjai & Associates, believes the implementation of VAT is beneficial for all.

“It is a win-win situation for everyone. The first beneficiary is the government because of the revenues. Second are banks because their quality to receive funding pattern will be great. The transparency will be increased. Thirdly, industries will also benefit because companies will not absorb the tax as it is a consumption-based tax. Ultimately, consumers have to pay, not the businesses. Whoever is a genuine businessmen, he will have good authenticity in the eyes of the banks and overseas companies that they have good business.”

Dinesh Kothari, chairman of Interstar Advisory Services, also ruled out that the five per cent VAT will bear on the minds of residents. He says it will not have impact on people coming to UAE and settling down here with families.

“The education sector, fortunately, has very limited impact of VAT on residents. Tuition fee, transport and anything that is part of curriculum is exempted. So, only things like books and uniforms to come under VAT. Fortunately, the Indian curriculum is not very expensive. So the total impact on a family will be Dh200 a year at the best. In British schools, books are part of the curriculum, so they are not impacted at all,” adds Kothari, who heads Delhi Private School and a few others in Dubai.

Vishant Mehta, manager of internal audit at Al Shirawi Group, says VAT was a requirement for the country. “Public services given by the government and the kind of facilities we are enjoying in this part of the world such as parks, hospitals and services will definitely require resources. Therefore, the government has to move away from the hydrocarbon dependence and expand resources,” says Mehta, also a member of the ICAI – Dubai Chapter.

Mahmood Bangara, vice-chairman of the ICAI – Dubai Chapter, believes that the “new taxes will not impact competitiveness of the country as the rate is among the lowest in the world”. He added that residents should also not be worried about any implication due minimal impact of inflation.