PORTFOLIO | Road To VAT
VAT Revenue, 2014 (or latest) (In percent of GDP)
10 8 6 4 2 0
7.8 6.7 EMOE 1/ 3.8 1.5 0.0 0.0
Sources: Country authorities; and IMF staff estimates. 1/ Emerging and developing oil exporters (include Algeria, Botswana,Chile, Colombia, Indonesia, Kazakhstan, Mexico, Mongolia, Nigeria, Peru,Russia, Trinidad and Tobago, Venezuela, and Vietnam).
1.8 4.2 4.8 5.1 5.3 7.9
10 8 6 4 2 0
1.5-2%
to 2% of GDP in revenue in the GCC
will have no impact on foreign direct investment into the region or exports from the region, the IMF staff report added. Moreover, the presence of a VAT also lessens the need to introduce a large number of excises, which are already used in the region. “Non-oil revenue mobilization, including by imposing VAT, has received new urgency after the oil price collapse. GCC states are likely to impose it together in 2018. The period until then will be used to prepare implementation,” Giyas Gokkent, Senior Economist for Africa/ Middle East, Institute of International Finance (IIF) says.
18
How it Works? Let’s see first how VAT works. The VAT, as we know it, is a modern consumption tax that has proven highly effective in mobilizing tax revenue and avoiding the distortions to production and trade associated with the cascading of indirect taxes. The VAT is paid on a net basis on the difference between sales (output) and purchases (inputs). Followed globally, VAT tends to be generally more complex in countries with a legacy of high dependence on indirect taxes and lower in those countries that adopted VAT more recently to replace revenue losses from trade liberalization. Lower VAT rates (3–5%) are found in the Asia/pacific region
(e.g., Japan, Singapore, Taiwan), while higher rates (20–25%) are generally found in Western Europe (e.g., Denmark, Norway, and Sweden). In the MENA region, rates are generally higher in the Maghreb (14% in Mauritania, 20% in Morocco) and lower in the Mashreq and non-GCC oil exporters (5% in Yemen, 6% in Iran). “The Maghreb and Europe regions have generally more complex rate structures with multiple rates,” according to the IMF staff report. Since VAT is consumption-based and implemented through the invoice-credit mechanism, it is charged on sales invoices and a tax credit is allowed for VAT charged on inputs. The VAT due on a sale is a percentage of the sale price from which the taxable firm can subtract all the tax already paid at the preceding stage. This way double taxation is avoided and tax is paid only on the ‘value added’ at every stage of production. To put it this way, the final price of a goods is equal to the sum of the values added at each preceding stage, and the final amount of VAT paid is equal to the total VAT paid at each preceding stage. For instance, a steel sheet supplier in
the UAE sells it to a retailer for AED 1000 and, if the VAT rate is 5%, the supplier invoices its customer AED 1050. It should pay AED 50 to the authorities, but since it has bought AED 100 worth of tools in the
www.wealth-monitor.com | February 2016
generate as much as 1.5
VAT could
Since VAT is a transaction
VALUE CHAIN. As a result, it calls for a
comprehensive record
keeping and accounting process
tax it impacts the entire BUSINESS
UAE GCC
Algeria Singapore Kazakhstan
Indonesia Australia Colombia Russia Peru Norway Chile
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