Dubai Customs closely studying practical aspects of implementing non-direct taxes in GCC

Dubai Customs is also looking to devise a suitable strategy to integrate investors and traders into the non-direct tax system.

These measures are part of the study being conducted by Dubai Customs in association with International Monetary Fund (IMF) to identify ways and means to facilitate smooth implementation of Value Added Tax (VAT) in the GCC region. Dubai Customs is conducting the study on behalf of the UAE Federal Government, which was authorized by the Secretariat-General of the GCC to undertake the study following submission of comprehensive suggestions regarding VAT implementation in the GCC.

At the seminar, held under the auspices of the IMF, Butti Ahmed said that the entire range of issues relating to the implementation of VAT was being discussed in detail in order to help evolve a standardized economic system across all GCC countries. The seminar emphasized the need for the GCC to find non-oil revenue sources to make up for the loss in Customs revenues that would be an inevitable result of implementing free trade agreements.

IMF experts present at the seminar remarked that a non-direct system represented a smoother tax-collection process than the present one of levying tax on profits. They also sought to press home the point that VAT represented a more equitable tax system, as none of the parties were unduly affected. The IMF experts said that implementing VAT across GCC countries calls for uniformity to be maintained in tariffs, tax management procedures, payments systems and financial auditing procedures.

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 changes witnessed in the global and regional economic systems have required the UAE to adopt a fresh trade approach that is in line with the new 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 free trade agreements come into effect, Dubai Customs will have to 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 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.

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.