The UAE is expected to generate US $3 billion in the first year from VAT taxation The UAE is expected to generate US $3 billion in the first year from VAT taxation

The UAE is expected to implement 5% Value Added Tax (VAT), effective from January 1 2018, reports sister publication Arabian Business. 

The tax is expected to be added to 150 food items, although health and education will be exempt. 

Obaid Humaid Al Tayer, Minister of State for Financial Affairs said the Gulf Cooperation Council resolution covering the tax will come into effect in 2018 but countries will have until January 1 2019 to implement VAT.

“There’s a span of one year flexibility given the readiness of each country,” he reportedly said at a conference hosted by the Ministry of Finance in Dubai.

The minister said each country will have the flexibility to introduce VAT within this time frame.

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In the first year, the UAE is expected to generate US $3 billion (AED12 billion) from tax revenue, Gulf News reported. It would be the first time the region has introduced direct taxation, in an attempt to boost regional coffers following a sharp drop in the oil price.

The International Monetary Fund said earlier this week that introducing a value-added tax in the Gulf region, even at a low single-digit rate, could raise revenues equivalent to as much as 2 percent of gross domestic product.

"Add to this greater emphasis on corporate income taxes as well as property and excise taxes. And continue to invest in building tax administration capacity that could eventually allow for introduction of personal income taxes," said IMF Managing Director Christine Lagarde.

Introducing VAT is a major economic reform in the Gulf Cooperation Council states, which have minimal tax systems and no tax on income, but some levy fees such as road tolls.

The plunge of oil prices since last year has slashed government incomes, making it more urgent for them to find new revenue.