U.A.E.: Govt takes to VAT forsaking customs duty

The Gulf Cooperation Council (GCC) has been pondering over the issue of Value Added Tax (VAT) for long. Finally, studies into its implementation have reached the advanced stage and UAE may very soon impose VAT replacing the older customs duties.
Customs duty will be terminated as part of the free trade pact that the GCC will sign with trading partners like the EU, China and India.
It took nearly two years for the country to decide that the proposed VAT would be the best practice for both UAE and GCC.
Abdul Rahman Al Saleh, Dubai Customs Executive Director, told a seminar at the Arabian Travel Market that VAT will be introduced across the country after the approval of the Federal Government and once its infrastructure for implementation is ready by the last quarter of 2008 or early 2009.
Although, the amount of revenue generated by the customs duty was not revealed, it is believed that the tax rate will be somewhere between three and five percent and will generate about the same as collected in customs.
Officials were also confident that even though the introduction of VAT may heighten the existing inflation, its impact will be limited for the first year and from then on it will become a part of the system.
The initiative to be taken by UAE is being supported by the International Monetary Fund (IMF) and the country has plans to spend the money raised from VAT, for social causes like health and education. The most elating part about introducing VAT is that since taxes are set at the lowest, burden on the masses will be minimal.
The only difficulty faced by the Government at present is of determining exactly how to bring the various kinds of services under the purview of VAT.