IMF (International Monetary Fund) Managing Director, Christine Lagarde has praised the UAE for leading other Gulf countries in its preparations to implement taxation that will be effective from January 1st, 2018. The IMF chief was speaking at the World Government Summit in Dubai, and told residents in the Gulf region that they must 'get used' to taxation in order to continue the investment in large-scale public infrastructure projects.
The UAE, and the six-nation Gulf Cooperation Council will all introduce VAT for the first time ever on January 1st, 2018. The move has been sought as governments seek to find new revenue streams to compensate for the reduction in the price of oil which has continued to decline since 2014.
The former French Finance Minister stated that in order to have public investment you need public funding and that it was inevitable that there has to be taxation in order to find the money to do this.
She said: "First of all, most people in the world do so, you know, get used to it. If people, consumers and investors, entrepreneurs want to have a country that is organized and has all the basics - you need public investment. To have public investment you need public funding. If public finances are reduced due to the price of a barrel (of oil) has gone down that money needs to be found somewhere else and, as a result, there has to be a degree of taxation."
The IMF advised the GCC governments to introduce VAT in November 2015, in the wake of a continued decline in oil prices, while many were reluctant to introduce the taxation measures - the UAE according to Largarde, has led by example in how it's preparing for the implementation of VAT.
"I really want to pay tribute to most of the Gulf countries, in particularly led the UAE, for deliberately willing to put in place VAT, which we know will be effective January 1, 2018, at a rather low rate and a system that will be simple enough and digital because when you start from scratch so you can innovate.
A spokesman for the UAE finance ministry said that the government is not considering any increase of the tax above 5% - and would not raise it in the future without conducting a thorough study of the economic and social impact a further rise could have on its citizens.
The Dubai government announced its 47.3 billion dirham ($12.87 billion) budget for 2017. The total budget allocation for the year is up 2.6 percent year-on-year, with infrastructure spending up by 27 percent compared with 2016.
The IMF Managing Director said US president Donald Trump's plan could boost the US economy and says we have reasons to be optimistic, but did disclose her fears that the Federal Reserve proposed plans to tighten monetary policy will present challenges to the global economy.
Largarde said: "From the little we know, and I will insist on the little we know, because this is really work in progress - but from the little we hear, we have reasons to be optimistic about economic growth in the United States. U.S. gains are good, but that the more worrying news, if you will, is that it will have consequences on the rest of the world, and we are seeing it. The Federal Reserve decision to tighten monetary policy will be difficult on the global economy and economies will have to prepare."