The six member states of the Gulf Cooperation Council (GCC),which includes the United Arab Emirates (UAE),have agreed to launch a common market, with the intent of increasing investment and trade between GCC member countries. To facilitate such an increase in investment and trade, the GCC countries have also agreed to implement a Value Added Tax (VAT) system. This study examines the likely impact of the proposed arrangements on the UAE, with a particular focus on its implementation in, and impact on the Emirate of Ras Al-Khaimah (RAK). The study examines and analyses issues surrounding the implementation of VAT regimes in other economies, together with perceptions of various sectors of RAK industry and the community. It identifies the most appropriate VAT policy options for RAK in the context of a federal revenue sharing system, and key policy and administrative imperatives that must be addressed to ensure effective implementation of the proposed regime. Based on the findings of the current research, it is considered that Australia and New Zealand have both implemented efficient models which the UAE could emulate. New Zealand is favoured due to the simplicity and perceived fairness of its arrangements. It consists of a single rate that is applied uniformly to most goods and services, has very few exceptions and a zero rating for exports. In this regard, requirements are simple and clear and administration and compliance is less costly. The research findings have also pointed to the need for members of the UAE to reach agreement on a number of key policy issues as a matter of priority. These include VAT type, applicable rates, exemptions, zero-rating, central or local administration, methods of collection, treatment of other taxes, financing of administration and collection, and, perhaps most importantly, revenue sharing. A number of revenue sharing methods were examined. The optimal revenue-sharing method for RAK is determined to be one in which 30 per cent of the tax revenue remains in the Federal Government account, with the remaining 70% to be shared among the Emirates according to an agreed formula. It is concluded that this option will not only provide the Federal Government with its own discretionary funding, but also provide the Emirates with their individual budgetary requirements. For RAK, a fair and clear system of revenue sharing is extremely important and a system which properly recognises the geographic location where the revenue is generated is considered to be the most practical. In this context, the research findings indicate that one aspect of the revenue sharing models that is likely to prove critical to the effective operation of a VAT system is the way in which the revenue distribution formula is constructed and agreed. The research has also pointed to the need to ensure that the scheme is widely understood, and that the associated regulatory requirements are simple, clear and predictable. Ultimately, the private sector‘s perception of the new tax arrangements will be based on their experience in meeting the regulatory requirements. As such, it will be important to minimise the regulatory burden on the various sectors by providing as efficient a system as possible. With regard to implementation of the new taxation arrangements, the research has identified a number of priority issues. First, there is need for Government clarification of its taxation strategy, including key elements of the new arrangements. Second, communication of the new arrangements to the public and business community, including consultation on issues of implementation wherever possible is of particular importance. This may include details of the proposed regulatory compliance program and the rights and responsibilities of taxpayers. Third, it will be necessary to establish a government authority with a well-trained, professional workforce with the necessary knowledge, skills and competencies to effectively and efficiently administer the new arrangements. Finally, there is a need to develop and deliver public and industry information campaigns and education programs to ensure that taxpayers are fully aware of their rights and responsibilities, and the likely impact the tax will have on them. In essence, the basic advantage for RAK is an opportunity to move away from its current reliance on revenue from customs tariffs and other fees and charges, by providing both the UAE and RAK with a long term, sustainable and predictable broad-based source of tax revenue. If implemented judiciously and in phases, it is considered that the new taxation regime can be understood and accepted by the public and commercial entities, and professionally administered by the authorities, thereby raising needed revenue effectively and efficiently.
| Date of Award | 2013 |
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| Original language | English |
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| Supervisor | David Widdowson (Supervisor), Mark Evans (Supervisor) & Steve Holloway (Supervisor) |
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