This is at the bottom of the scale currently being considered which stands at between 3% and 5%, but is in line with IMF recommendations for the duty.
VAT is scheduled to replace the current Customs Duty levied on incoming goods, which stands at 5%.
The UAE is expected to be the first GCC member to introduce VAT.
The move is in line with the country’s plans to enter into Free Trade agreements with a number of countries over the coming 18 months.
Officials confirmed that draft laws have already been submitted for approval by the UAE’s federal authorities and are awaiting approval.
The date for the switch to VAT from the Customs Duty is as yet undetermined, as is the exact level that the duty will be levied at or the threshold from which charges will be applicable Ahmad Butti Ahmad Director General of Dubai Customs said at a press briefing held in Dubai on Sunday.
‘Dubai Customs has recommended a level of 3% but we are not the authority which holds the final decision, it is a federal decision,’ Ahmad said. ‘That figure is also what has been recommended by the IMF.’
There has as yet not been a decision on what goods, if any, will be exempt from VAT. Officials at the briefing said that it was likely that very few sectors would be granted exemptions as the tax was to be rolled out universally.
Answering questions of potential abuses of the new system, Ahmad confirmed that the Ministry of Economy would be closely monitoring retailers to ensure that prices did not increase. Consumers should not notice rises in the day-to-day costs of households goods.
It was also confirmed that prices would be clearly marked at the point of purchase, and would be inclusive of the tax.
Value Added Tax, also known as the Goods and Services Tax, is an indirect form of taxation which is levied by businesses on behalf of the government.
Although the UAE is likely to be the first GCC member state to initiate the duty it is already in use in 145 countries around the world, including Lebanon, Jordan and Syria.
The tax aligns with World Trade Organisation Free Trade requirements.
Companies will be able to register and claim returns for the duty online.
The duty will only apply to businesses with a turnover above a set limit, smaller retailers and wholesalers will not be affected. The threshold figure has not yet been finalised.
As opposed to the current Customs Duty which is unrecoverable, if the trade goods are not sold the business can claim the tax back.
Studies commissioned by Dubai Customs have shown that VAT has no, or only minor, effect on inflation levels. Turkey witnessed a reduction in the level of inflation when it introduced VAT.
Monday, June 2- 2008 @ 10:08 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.