Luxury shoppers in the United Arab Emirates will start seeing higher prices in the near future.
The UAE's Finance Ministry has put forward a plan to implement a value added tax and a corporate tax. Luxury goods, alcohol and tobacco would be the main target of the new VAT, while essential items would remain exempt.
An exact VAT rate has yet to be announced by the government but the IMF has previously suggested implementing a tax of about 5 percent. Details about how the tax would be implemented have yet to be released as well.
As for the corporation tax, few details have yet been revealed. Currently the UAE levies a tax on foreign banks that operate within the country.
Implementing the new tax law won't happen over night. Such significant legislation must be reviewed by all concerned government departments before reaching the Federal National Council for close scrutiny. It then faces approval by the Federal Supreme Council and finally will be signed by President Khalifa bin Zayed bin Sultan Al Nahyan.
Recently, the UAE has been taking steps to address economic concerns surrounding the drastic fall in oil revenues. Oil prices have dropped by more than 50 percent since June of last year when barrel prices hovered around $115 compared to the current $50. At the beginning of this month, the government removed fuel subsidies causing prices to rise at the pump for consumers.
The IMF has previously estimated that the UAE will face a 2.3 percent spending deficit this fiscal year. Implementing new taxes and removing subsidies are measures intended to offset deficit spending due to lower oil revenues.