The United Arab Emirates will start imposing a tax on selected goods starting Oct. 1 as Gulf Arab nations seek to deepen government revenue to counter the drop in oil prices.
A levy on designated goods – tobacco, energy drinks and soft drinks – will include those sold at airports and free zones, Younis Al Khoori, undersecretary at Ministry of Finance, told the state-run WAM news agency. Products purchased at airports by travelers taking the goods abroad will be exempt, he said.
The move is one of the measures taken by the six-member Gulf Cooperation Council to bolster non-oil revenue and is a milestone for a region that has attracted companies and workers largely through the promise of tax-free living. The bloc is also moving to implement value-added taxation though governments say they have no plans to introduce income tax.
The levies are a “move in the right direction and will help the economy survive in the post-oil age,’’ Hootan Yazhari, head of MENA research at Bank of America Merrill Lynch, said in a Bloomberg TV interview. “With oil prices looking range bound now with the $45 to $55 range over the next few years, these changes are necessary.’’
Saudi Arabia, grappling with a double-digit budget deficit, has already implemented an excise tax this year. The International Monetary Fund in October said the Gulf monarchies have “considerable scope” to boost tax income from other industries and advised them to gradually “introduce or expand the tax on business profits.”
The levy is estimated to generate around 7 billion dirhams ($1.9 billion) in annual revenue for the U.A.E. government, according to WAM. Energy drinks and tobacco products will be subjected to a 100 percent tax, while the levy on soft drinks will be 50 percent, Al Khoori said.
Imposing income tax in the U.A.E. isn’t expected to be high on the agenda, Yazhari said. “There are other forms of taxes that would come first.’’