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Apparantly in 2 years time VAT will be introduced in Dubai at rates of between 3-5%.....

http://www.gulfnews.com/business/Economy/10062264.html

UAE needs VAT with safeguards
By Robert Ditcham, Staff Reporter



Dubai: A system of value added tax (VAT) planned for the UAE must include tough safeguards against fraud, warn tax experts.

Criminals could attempt to replicate carousel fraud in the UAE when a VAT of 3 to 5 per cent is adopted in about 2 years, they say. This type of trade fraud is rife in the European Union.

As reported in Gulf News, carousel fraud cost the UK Government between £1.1 billion and £1.9 billion in lost tax revenue from 2004-05.

In its simplest form, the fraud occurs when goods are traded tax free between EU member nations. A trader sells them on to another company in an individual country with VAT included and then disappears without passing the 17.5 per cent VAT onto customs.

A more complex method happens when a company imports goods free of VAT, sells them onto a second company involved in the scam, which re-exports the goods, claims VAT from UK Revenue and Customs and imports them again.

"There is a danger that some similar type of fraud could be encouraged here," said Dr Khalid Maniar, managing partner at Dubai-based chartered accountants Agn Mak.

"The VAT system that is introduced must include a set of safeguards to minimise it."

Maniar suggested imposing tough restrictions on applications for VAT registration certificates, which allow companies to import goods and defer VAT payments until they are sold.

"The UK is a very open investor-friendly country, which seems to allow companies to apply for VAT registration without closely scrutinising their credentials," he said.

Maniar sought a limit on the value of goods that can be imported free of initial VAT payments, minimising the amount of money criminals can make from scams.

Officials at Dubai Customs refused to speculate on whether the introduction of VAT would encourage carousel rackets, but did not rule out the possibility.

"We are in contact with the UK Government to learn from their experience in this regard," said Abbas Makki, director of international relations at Dubai Customs.

"Through a combination of intelligence and risk management, we are confident we can limit any potential fraud."

Raju Menon, vice-chairman at Dubai-based Morison Menon Consulting, said carousel fraud was possible in the UAE but the chance of it happening on a similar scale to the UK was unlikely.

He said UK carousel fraud relies on companies going into liquidation in order to disappear, thereby avoiding VAT payments when goods are sold on.

According to Menon, UAE companies find it difficult to go into liquidation as bankruptcy laws are still in their infancy here, meaning the government will be able to hunt down criminals via payment receipts before they can vanish from official records.

"The chances of carousel fraud happening here are very slim, but loopholes can be exploited in every system," he said.

If people do not have a clear idea of VAT it sure is gonna create a lot of confusion. I am not sure but whats the position of sales tax in Dubai?

When it was implemented in india the system was thrown outta gear for quite some time. Commodities falling under different categories had different slabs of tax. Understanding this was one of the biggest problem as the complete list was not available. It was not clear if certain businesses would apply this tax and if they had to what would be the percent.

After over a year a few things are clear but still not up to the mark.

hope the situation is better here.

Cheers

J

I heard about this before. Its to pay for free-trade agreements - so in theory the price of goods will not be impacted.

At the very least it should create some jobs for us accountants!!

Pah!

Who forces a country to introduce VAT?: Accountants!
Who then administers the process?: Accountants!
Who gets paid vast sums of money to work it all out?: Accountants!
Who actually has to collect and pay the VAT and then pay the accountants to account for it all?: Us...and we have to pay for the bloody priviledge!

VAT is evil!



Knight

the_zooter wrote:I heard about this before. Its to pay for free-trade agreements - so in theory the price of goods will not be impacted.

At the very least it should create some jobs for us accountants!!

I think Shakespeare mean to say "...kill all the accountants".

We expats need a break! No tax is one advantage of Dubai why were all here anyway.

It might not be implemented anyway, January they press released about the toll fee for Sharjah Dubai road, result = none. Yipeeeee

It won't be implemented until they revalue the Dirham, and it will be taken into account for the revaluation. i.e. with the revaulation, the cost of imported goods should decrease, and provide some headroom for the VAT.

5% is not much of a price hike. In Australia we introduce a 10% VAT (called GST) in 2000 and although it produced reams of paperwork (re: DK's comment), the overall financial impact on people's wallets was very minimal.

It's not a bad thing, and something the UAE does need.

I'm also in agreement with it because I'm tired of hearing "Us expats get it hard enough blah blah". It's making us sound like a pack of whingers, so I'm doing something to reverse the trend.

^ian^ wrote:It won't be implemented until they revalue the Dirham, and it will be taken into account for the revaluation. i.e. with the revaulation, the cost of imported goods should decrease, and provide some headroom for the VAT.

5% is not much of a price hike. In Australia we introduce a 10% VAT (called GST) in 2000 and although it produced reams of paperwork (re: DK's comment), the overall financial impact on people's wallets was very minimal.

It's not a bad thing, and something the UAE does need.

I'm also in agreement with it because I'm tired of hearing "Us expats get it hard enough blah blah". It's making us sound like a pack of whingers, so I'm doing something to reverse the trend.

You could start the trend by sending 5% of your salary to the goverment (one large VAT) - its only half as much as Australia (and no income tax) so you'll still be way ahead.

Concord wrote:You could start the trend by sending 5% of your salary to the goverment (one large VAT) - its only half as much as Australia (and no income tax) so you'll still be way ahead.

You're assuming I spend 100% of my salary.

Added to that, as I mentioned with the revaluation of the dirham, the cost of imports should go down, which is a win/win situation.

Win 1 - UAE Government gets more taxation revenue to reinvest into Dubai infrastructure.
Win 2 - Prices should remain static and with revaluation, the Dirham is worth more in your local currency if you send it back there.

I personally can't see prices remaining static if there is 5% VAT. Currently prices in Dubai are lower than say the UK for example as a result of the lack of VAT. For prices to remain static after the introduction of 5% VAT then somewhere somebody (ie. manufacture, importer, distributor or retailer) is going to be taking that hit. I just can't see that happening myself so prices will invariably go up.

Not saying it's a bad thing, and agree with you Ian that this is something that does need to be done in the UAE, but prices won't stay static

G wrote:I personally can't see prices remaining static if there is 5% VAT. Currently prices in Dubai are lower than say the UK for example as a result of the lack of VAT. For prices to remain static after the introduction of 5% VAT then somewhere somebody (ie. manufacture, importer, distributor or retailer) is going to be taking that hit. I just can't see that happening myself so prices will invariably go up.

Importation is based on the US$, and lately the perceived worldwide value of the $US is decreasing, hence it's costing more for people to import into the US, or for countries like Dubai, who have their currency pegged against the US$.

When the dirham is revalued, this means that the Dirham will be worth more US$ than previously, meaning the cost of imports should go down.

That's the problem with pegging. Since a good chunk of everything (even people) in Dubai are imported, the cost of things Dirham wise should decrease.

Not saying it's a bad thing, and agree with you Ian that this is something that does need to be done in the UAE, but prices won't stay static

See above. If it's done with the revaluation of the Dirham (most likely), then prices could stay the same or possibly even go down. Especially if it's a 10% revaluation like what was proposed a few months ago.

^ian^ wrote: Win 2 - Prices should remain static and with revaluation, the Dirham is worth more in your local currency if you send it back there.

Try explaining that to the Zimbawge National Bank!

Concord wrote:

^ian^ wrote: Win 2 - Prices should remain static and with revaluation, the Dirham is worth more in your local currency if you send it back there.

Try explaining that to the Zimbawge National Bank!

well, given the exchange rate, a 100% increase in the ZBG isn't going to do it any favours.

Concord wrote:

the_zooter wrote:I heard about this before. Its to pay for free-trade agreements - so in theory the price of goods will not be impacted.

At the very least it should create some jobs for us accountants!!

I think Shakespeare mean to say "...kill all the accountants".

and Solicitors, i mean money grabbing leeches

I dont believe they will revalue the Dirham just because the dollar is weak against other currencies at the moment.

Currently with a weak dollar, exchange againt other currencies makes the UAE very attractive in both trade and tourism.

I also dont agree with those that say it wont affect the price of goods. They will adopt either the UK or US system of revenue collection in that the "tax" is in addition to the cost of the goods. It is a tax and not a means to adjust the price of the product/service.

Nobody has considered that VAT is not just payable on goods. It includes "services as well", this includes labour. This in turn has to be passed onto the consumer. This will also include your DEWA bills and that other new TAX, the DEWA rent/ownership charge.

Other things that will attract VAT will include: car insurance, plane tickects, the cinema, car purchase's and FUEL.

Inflation is currently running @ 9.4 % in DXB. This is very high indeed and until the property boom starts to slide, inflation will continue to increase. Dubai's ecomomy is not very healthy at the moment.

arniegang wrote:I dont believe they will revalue the Dirham just because the dollar is weak against other currencies at the moment.

That has been the main impetus to date for discussions regarding the revaluation of the dirham. It's in Gulf News once a week.

Currently with a weak dollar, exchange againt other currencies makes the UAE very attractive in both trade and tourism.

At $75 a barrel, the oil trade is not attractive. The UAE doesn't export much else besides tourism and dates. Granted the tourism is attractive due to the conversion, but the current valuation is hurting the inflation which is high on the agenda to get down in 2007.

I also dont agree with those that say it wont affect the price of goods. They will adopt either the UK or US system of revenue collection in that the "tax" is in addition to the cost of the goods. It is a tax and not a means to adjust the price of the product/service.

If it is done in sync with the revaluation of the dirham, then goods should either go down or stay stagnet. Remember it is a regulated market so a decree could quite easily ensure this is the case. That said, the opportunists will jump on it.

Nobody has considered that VAT is not just payable on goods. It includes "services as well", this includes labour. This in turn has to be passed onto the consumer. This will also include your DEWA bills and that other new TAX, the DEWA rent/ownership charge.

Other things that will attract VAT will include: car insurance, plane tickects, the cinema, car purchase's and FUEL.

I had considered all those things but in reality it has to happen.

Ian i am going to have to respectfully disagree with you regarding the revaluation of the dirham. It will not be consideration by the govt because it does not feature in the WTO report or the IMF recommendations.

The stability of the Diram is soley dependent on the interest and inflation rate of the US.

Regarding oil, this is only currently 10.5% of the GDP of the UAE and has no bearing on the inflation rate within the UAE. The income from oil is soley used for the "public purse" which last year stood at 38 billion AED in reserves.

Also Ian regarding "inflation" in 2005 it was running @ 13% it is down to 9.5% currently.

You are correct in saying that it is predicted to further drop, but the figures are only reflectly the position of the property market which is currently stagnated.

The underlying inflation rate however is still comparitively high in comparrison to most of Europe and the US.

The cost of borrowing is the general benchmark of the true inflation rate which currently is between 6-8%

Dubai ranks 25th among world's expensive metros
posted on 27/06/2006
Confirming what many residents have long suspected, a worldwide survey has placed Dubai among the top 25 most expensive cities, jumping almost 50 places from last year.

According to the annual Mercer Human Resource Consulting Cost of Living Survey, the emirate broke into the top-most expensive cities, tying for the 25th spot with Helsinki in Finland.

However, the survey also indicated that Dubai is still cheaper than some less-developed cities including Beijing (14th), Istanbul (15th), and Shanghai (20th). Abu Dhabi was ranked 13th, up from 64 last year; while Beirut was 32. The survey ranks 144 countries, measuring the comparative cost of more than 200 indicators including housing, food and transportation.

It should be noted though, that the survey reflects the cost of living for people living a "Western-style" lifestyle in the cities ranked. According to Dubai-based investment advisor, Dr. Khalid Maniar, Dubai's ranking does not come as a surprise. "If the earning potential of the city mirrors the increase in the cost of living, then the new ranking would be fine," he told Gulf News. "However this does not seem to be the case."

"There are some who are definitely benefiting from the current climate, but there are segments of society who are obviously facing hardships. The average person's earning potential does not appear to have increased accordingly and this concerns me."
The rise in Dubai's ranking can be attributed primarily to the booming real estate sector, which has
resulted in a knock-on effect for other sectors raising the cost of living, said Dr. Maniar, who also indicated that he expected Dubai's ranking to continue to rise.

"I think it will continue to rise perhaps not at same pace - but in the next couple of years we could see Dubai jump another 10 places up the ranking," said Dr. Maniar.

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UAE surplus hits Dh38.2b
posted on 27/06/2006
A restructuring of the UAE's monetary policies and the implementation of the Performance Budgeting System has helped achieve a surplus of Dh38.2 billion in the government's financial account, a ministerial report said yesterday.

The revenues increased to Dh160.5 billion, or an increase of 69.3 per cent in 2005, compared to 2004. Public expenditure increased to Dh122.3 billion in 2005, an increase of 27 per cent over 2004. This was reflected in the final surplus that amounted to Dh38.2 billion, while in 2004 there was a deficit amounting to Dh1.5 billion.

"A positive phenomenon demonstrated in the economic performance of the UAE in 2005 is the surplus in the unified monetary accounts of the State. The UAE economy had suffered a deficit in the general budget over the last two decades," said the 2005 Economic Performance Report of the UAE Ministry of Economy.

"The state undertook, through its financial apparatus, to develop monetary policies that aim to rectify the monetary situation and to decrease the deficit. Therefore, the state rationalised costs, used the budget of programmes and performance and considered increasing the state's resources."

The increase in public resources has been attributed to the increase of oil and gas revenues. These revenues amounted to approximately Dh 111.4 billion in 2005, compared with Dh 73.3 billion in 2004. Profits of the state from joint-stock companies increased by 23 per cent over the year 2004, the report said.

The government is keen to maintain its level of services and to develop governmental work so as to improve efficiency and increase productivity. Consequently, public expenditure increased from Dh96.3 billion in 2004 to Dh122.3 billion in 2005. Current expenditure, including salaries, production requirements and current remittances represented 63 per cent of the total expenditure in 2005.