UAE’s Economy growth and VAT

A recent survey conducted by the KhaleejTimes of the top UAE executives shows that most of the CEOs are confident about the health of the country’s economy. The survey reports that the chief executives of major enterprises in the country believe that the economy will continue to grow thanks to the release of VAT system, and a stable political and business infrastructure across the zone.

UAE growth parameters

About 70 per cent of the UAE-based CEOs are confident in the country’s ability to continue providing a strong business environment to the local and foreign companies. The increase in business owing to the upcoming 2020 Dubai Expo is also a sign of the strong economic status. Around 25 per cent of the remaining CEOs are also confident in the stability of the economy but not too much in the growth scenarios. The remaining respondents believe that the UAE’s economy might fall in the coming period.

For many years, the UAE has been a trading hub for re-exports because of its transparent and well-developed business infrastructure and ample investment opportunities, which will be further fueled by the launch of the value-added tax (VAT). Many country CEOs even believe that the friendly policies of Dubai’s government will be a major factor behind this growth.

Many global financial institutions are also projecting an increase in growth for the UAE economy in the coming year as compared to this year. Euromonitor International predicts a jump of 4.4 per cent, while Moody’s Analytics suggested that the economy might see a growth of around 3.8 per cent in 2018. Both the Emirates NBD and IMF have forecasted a growth scenario of 3.4 per cent, while Citigroup and the World Bank have projected 3.3 and 2.5 per cent increase respectively.

The Expo 2020 is also expected to have a positive effect on the country’s economy resulting in improved global equity markets, an increase in the number of tourists to Dubai and other places in UAE, and so on.

One of the reasons for the recent decline in growth was the hike of crude oil prices, which is now recovering back, resulting in an improved confidence among retail investors. The increase in construction activities and consumer spending and growth of the economy in no-oil sectors are other factors responsible for increasing investors’ confidence in the UAE economy.

The role of VAT in UAE’s Economic Growth

The UAE government is all set to launch the VAT system with 5% tax rate on a number of consumer goods and services. A few items have been kept out of the VAT coverage.

The survey reveals one or two things about the impacts of VAT on this projected growth scenario. Most businesspersons are confident that the implementation of VAT will bring positiveness to the existing system by diversifying government’s revenue sources. It is also being believed that the consumption rate might see a hike in the pre-VAT months while it may temporarily decrease after the implementation of the new tax system.

About 75 per cent of the UAE companies are planning to fully pass on VAT liability to consumers while the remaining firms may do it partially as and how suited. The survey also indicated that around 24 per cent of the UAE businesses are already prepared for the new tax system while the remaining 76 per cent are still working on it.

VAT is expected to give the UAE economy a U-turn in terms of growth and new opportunities. The new source of revenue will allow the government to deal with the inflation and other related problems. The highest impact will be on businesses that have been exempted from VAT as they will now have to bear the complete tax liability passed on to them by their suppliers and have no option to claim a refund. However, they can further pass some or whole of the increased cost (due to tax) to their customers.

Growth sectors in UAE

The following UAE business sectors may also report a growth (or decline) in the coming period.

More jobs

According to the report, 86 per cent UAE companies are planning to hire in the last quarter of 2017 while the other 14 per cent will not be hiring any more personnel this year.

Recovery of oil price

Many businesspeople are also expecting a recovery of oil prices. About 37 per cent of professionals believe that oil prices may drop to $50 or lower over the coming months. Around 16 per cent expect oil to cost around $40 or lower while around 26 per cent expect the oil cost to be around $60 per barrel.

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