DUBAI: CFA Society Emirates, the association for financial and investment professionals in the UAE, has unveiled the results of a survey which assessed the impact of introducing Value Added Tax (VAT) across the GCC.

The survey provided market insights from CFA members and charterholders in the UAE.

With the UAE set to become the first country to introduce VAT by 2018, 82 percent of the respondents said that this will lead to higher inflation rates.

They noted that demand for luxury goods will be affected the most by additional VAT costs followed by cars, then tobacco and real-estate. Meanwhile, CFA professionals saw health care as the sector which will be least impacted by the additional VAT costs.

Another significant finding was that 80 percent of the respondents said that they would consider moving abroad if an income tax were to be introduced, since 59 percent of them revealed that the GCC’s tax-free environment was a key factor in their decision to reside here.

On the corporate level, employers will not consider relocating if corporate tax is introduced as per 59 percent of the respondents, although 41 percent of them believe otherwise.

According to the survey, consumers in the region will have to bear the additional costs VAT will introduce, instead of retailers, as it is ultimately paid by the end consumer.

Furthermore, CFA members also affirmed that there are various hidden or indirect taxes already in place, highlighting hotel taxes as the most obvious example, followed by road tolls as well as car registration and parking fees.

Amer Khansaheb, CFA, president of CFA Society Emirates, commented on the findings: “CFA professionals see VAT as a paradigm shifting reform in the GCC’s fiscal policy and are unanimous that it will lead to higher inflation.”

Khansaheb added: “Although inflation rates are also heavily influenced by interest rates and economic growth, the immediate effects will pose challenges to both consumers and businesses. The additional costs will only be marginally felt by the day to day consumer, but it will have a bigger effect on higher budget purchases.”

Seventy-three percent of the professionals surveyed stated that consumer good are more expensive in the GCC than their home country; hence VAT will add an additional burden to consumers, leading to higher prices and resulting in inflation, according to the president.

Khansaheb added: “However, the short-term impact will be offset by the long-term benefit VAT will bring to the regional economies. There is an urgent requirement to diversify government revenues, which are currently still largely dependent on income from oil and gas, and VAT is a measure that will allow more stability given that the outlook for crude prices remains volatile.”

Additionally, VAT would encourage more responsible consumer spending patterns and prices would have to be reduced in order for demand to match this trend; which would eventually lead to a decrease in inflation rates, Khansaheb said.

The UAE is expected to generate around AED10 billion to AED12 billion as a result of introducing VAT in the first year of its implementation. In this context, 66 percent of respondents said that the GCC countries will be able to efficiently manage the extra revenues received from VAT.