SHARJAH, 24 January 2005 — The member countries of the Gulf Cooperation Council (GCC) are likely to impose a value-added tax (VAT) on cigarettes, cigars and other tobacco products by the end of 2005, according to a Dubai Chamber of Commerce and Industry (DCCI) economic bulletin.
VAT is to be levied on tobacco and other “harmful” products during the year 2005, and will be “probably followed by a nominal VAT on other consumer products in later stages” in the GCC, said the bulletin.
The GCC countries have already agreed to impose the levy and it was only a matter of finalizing a date to start collecting the tax. The move awaits the enforcement of the uniform customs duty at five percent throughout the six GCC countries.
According to a source quoted in the Khaleej Times of Dubai, the GCC Economic and Financial Committee “seriously discussed” the issue during a recent meeting it held in Jeddah and it was “unanimously agreed that there is an urgent need to curb the massive consumption of tobacco” in the GCC states.
A committee has been formed to study the implementation of the decision on tax on tobacco products and submit a report in 45 days to the GCC Economic and Financial Committee.
“There are many adverse social, economical and health problems caused by excessive consumption of the tobacco,” the source was quoted as saying. The decision to levy a tax on tobacco and other harmful products will definitely help improve social health conditions, according to the sources.
The sources affirmed that the there will be no review of the decision to impose the tax.
“We are ready to impose the taxes after we have collected all the needed data. We are just waiting for the GCC tax and duty system to be streamlined and the newly imposed uniform five percent duty to be implemented,” according to the sources.
They described the proposed tax as “one of the most important for the current year” and said: “Nothing will delay the imposition of the new taxes, we were told to wait until the commissioning period of imposing the GCC customs’ unified tariffs is over.”
The Dubai authorities are studying the implications of the proposed VAT on general trade.
It is generally deemed here that while levying VAT could bring significant increase in government revenues, businesses may suffer a shortfall in demand for consumer goods.