Dubai Customs and IMF jointly conduct study on implementation of VAT regime in GCC

The study is being conducted in coordination with the UAE Ministry of Finance.

Dubai Customs is part of the task force constituted to conduct the study on behalf of the UAE Government. The UAE Federal Government was authorized by the Secretariat-General of the Gulf Cooperation Council (GCC) to undertake the study after it submitted detailed suggestions regarding the implementation of VAT in the GCC countries. The task force will closely study various options before putting forward their final suggestions and recommendations to the GCC Secretariat-General.

IMF had recently released a study calling for implementation of the new tax system in two stages. The report recommended levying of tax on selected goods like tobacco, cars and electronic items and the removal of customs duty on all imports, with the tax being collected directly from the distributors, agents and wholesalers. At a later stage, this process will be further modified to ensure that the tax is applied only at the point where the good is actually sold to the customer.

Abdul Rahman Al Saleh, Executive Director Business Support and Services, Dubai Customs and head of the task force conducting the study on VAT implementation, said,

"The global and regional economic systems have undergone a major transformation, requiring the UAE to adopt a fresh trade approach that is in step with the changed economic reality. The UAE is seeking to sign mutually beneficial free trade agreements with several countries and influential economic blocks, and is already in discussions with the USA, European Union (EU), Australia and China. The proposed changes to the country's economic system will make the UAE ready for these agreements."

"Once the trade agreements take effect, Dubai Customs will be required to substantially bring down the customs duty on various items, making it imperative for us to look for alternate sources of revenue. This influenced the move towards a non-direct tax regime," Al Saleh added.

The IMF in its primary report had underlined the importance of defining all taxes being paid by the private sector and the need to bring them under an integrated tax system. The report called for sector-wise categorization of customs tariffs, so that tax rates could be fixed accordingly. The IMF report also laid emphasis on the need to ensure that the transformation to the new tax system does not lead to an increase in prices, and suggested a timeframe for GCC countries' shift towards a non-direct tax regime.

Dubai Customs' efforts towards a liberalized trade regime come at a time when the World Customs Organization (WCO) is urging countries to remove trade barriers, including customs tariffs, in order to facilitate free trade.