To compensate for the loss in customs revenues expected to arise from free trade agreements with the European Union, China, and India that are in the works, the United Arab Emirates (UAE) is planning to introduce the value added tax (VAT) as soon as the first quarter of 2009.
Abdul Rahman Al Saleh, the executive director of Dubai Customs, said, "We [in the UAE] envisage the implementation sometime in 2009, but I cannot tell you the month yet."
The exact rate for the tax has not yet been determined, but it is expected to be between 3% and 5%, applied as a flat rate on all goods and services.
There are, however, concerns that the new tax could reduce the UAE's appeal as a business and investment hub, and further increase the UAE's already high rate of inflation.
Al Saleh downplayed these fears, saying: "I have no concern that the UAE will be perceived as less attractive for doing business, we have been looking at inflation and our conclusion is that VAT will not cause any inflation. The VAT is being introduced to replace customs duties. We are targeting a very low rate of tax compared to an average of 20% in Europe."
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