UAE’s VAT collections exceeds expectations by a wide margin in 2018
UAE residents paid Dh27 billion in value-added tax (VAT) last year, surpassing the government’s target of collecting of Dh12 billion, an increase of 125 per cent. It even surpassed the goal of Dh20 billion VAT revenue collections for 2019.
The total VAT collection was also close to the UAE’s nine-month of surplus, which stood at Dh28 billion during the January-September 2018 period.
Analysts expect that VAT revenues will further increase in 2019 as companies analyse their incomes, expenses and IT systems to ensure that correct VAT has been paid. This, in turn, will help the government to increase its spending on the infrastructure and public welfare programmes.
“The introduction of VAT is a key fiscal reform and we had forecast stronger VAT collection of around 1.6 per cent to 1.8 per cent of GDP in the first year of implementation. We expect to see some pickup in 2019 as spending normalises after the initial impact of VAT on consumer spending wanes, though we still see softness in household expenditure. Some of the VAT in 2018 was absorbed by corporates as they reduced prices to support domestic demand,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
“VAT collection in the UAE would have benefited from the great role of private consumption in the economy, resident and tourist related, and the broader VAT base, than, say Saudi Arabia,” Malik added.
The Dh27 billion VAT collection accounted for 1.7 per cent of the UAE’s 2018 nominal GDP, which is projected to reach Dh1,589 billion, per IMF estimates.
Surandar Jesrani, managing partner and CEO of MMJS Consulting, attributed robust revenues in the first year mainly to the efforts of the Federal Tax Authority on highlighting the importance of compliance.
“We act as a consultant to many businesses in the UAE and we see each day how businesses care about VAT compliance. I believe ‘VAT in business’ is like a ‘blood in body’; once VAT is in business, it’s there for all and due importance to it can’t be ignored. The culture of VAT is developed and developing further,” said Jesrani.
He, however, refused to forecast an expected increase in VAT revenues for 2019 but said that revenues will be on a consistent basis.
Jesrani added additional revenue generated from VAT will be utilised to provide high-quality public services including hospitals, roads, public schools, parks, waste control and police services.
“This will create a lot of trust and happiness in the country because amount collected from consumers will ultimately be utilised for the benefit of citizens and residents,” Jesrani said, adding that taxation is a globally-recognised practice of expanding and increasing government revenues and the UAE is on that path that will allow the country to diversify from existing sources of income.
According to the UAE government’s decision, 30 per cent (Dh8.1 billion for 2018) of VAT revenues will go to the federal government and 70 per cent (Dh18.9 billion for 2018) to local governments, per the approved mechanism for 2018 to 2020.
Jitendra Gianchandani, chairman and managing partner of Jitendra Consulting Group, said VAT collection in 2018 was higher than the budget due to the non-VAT paid stock in hand before January 1, 2017, as registered businessmen paid output VAT to the government without setting off the VAT on inputs.
“Apart from that, 2019 has seen a significant drop in business compared to 2018 due to various local and international reasons. Hence, expecting growth in VAT has to be seen in the coming days,” he said.
Nimish Goel, partner at WTS Dhruva Consultants, said though overall economic sentiments are not high, there is a strong possibility of VAT revenue still increasing for the government.
“This is primarily because companies are still analysing their incomes, expenses and the IT systems to ensure that correct VAT has been paid by them. As more and more companies do this internal diligence, the likelihood of unpaid tax or incorrect input of VAT recovered cannot he ruled out, thereby making the curve of tax collections in the coming year high,” said Goel.
He noted that the tax money should very effectively be pumped back in the economy that will create avenues for government spending, thereby improving the sentiments of the businesses.