Introduction of VAT receives mixed responses from real estate sector

Whether the advantages outweigh the disadvantages, and to what extent they do, or vice versa, is yet to be determined, especially when taking into account the country's current economic performance of the country that recorded a rate of 7.4% last year, and is expected to drop to 6.3% this year according to estimates by the IMF.

The proposed VAT amount to be levied on various products and services throughout the seven emirates is 5%.

Commenting on the subject, Rakaa Properties CEO, Dr. Abdul Rahman Al Tassan, said:

"The property market in the country is still seen as one of the most productive markets in the region. It has recorded a growth rate of 20% in Abu Dhabi over the last year, according to recent statistics by the Abu Dhabi Chamber of Commerce and Industry. This growth is the result of the various big projects unveiled in Abu Dhabi, at a combined cost of Dhs200bn, bringing the total cost of projects currently under construction or in the design phase in Abu Dhabi to $466bn- a 30% increase over the projected cost presented at "Cityscape" 2007, where predicted costs were estimated at $327bn. The total cost of projects in Abu Dhabi is set to increase, given the growing number of projects under development in the emirate and the number required in order to satisfy the needs of residents and investors alike."

Meanwhile, "profits are down to 15%, having peaked at 100% with the initial rise of competition, new alliances and the emergence of several powerful new entities in the market. Lower profits are attributable to lack of opportunities, the scarcity of reputable contracting companies and the increasing costs of basic development materials, such as concrete, on which there has been a 400% price hike in a single year."

Al Tassan, whose company is currently developing two residential towers on Al Reem Island using SMART building technology, says of the impending implementation of VAT, "The introduction of value added tax will have two major implications for the local economy, one of which is advantageous and the other, disadvantageous. Diversification of the country's income resources, as opposed to depending solely on oil, promises to be of great advantage to the economy. On the other hand, the introduction of VAT would impact negatively on the attractiveness of the local investment environment, since the tax-free environment has always been one of our strongest selling points, drawing capital from across the globe and providing massive amounts of liquidity with which to launch new projects. With the implementation of a VAT system, we risk losing substantial amounts of foreign investment to our rivals in the region, not to mention the effects on inflation rates. Given the uncertainty surrounding the issue, the best means for determining the way forward would be to conduct further research and to implement measures to maintain healthy earning potential and aid diversification of income sources."

Value Added Tax is a sales tax levied on top of the cost of a product or service and generates revenue for a government.

It is widely used across the globe due to ease of payment and ready comprehensibility.

The VAT system is currently used in 118 countries worldwide.