Home / NEWS / Hill Int'l: GCC 5% VAT a 'necessity, not option'

Hill Int'l: GCC 5% VAT a 'necessity, not option'

by Neha Bhatia on Mar 3, 2016

VAT is an economic necessity in the GCC, an expert said.
VAT is an economic necessity in the GCC, an expert said.

The introduction of 5% value added tax (VAT) in the GCC, confirmed by the UAE's finance minister last month, is an economic necessity rather than an option, an expert from Hill International said. 

Tim Whealy, vice president at Hill International, told Construction Week he believes an interim period might be established for the construction industry to identify the supply chain dynamics of VAT.

“Some of it is going to be needed to work through, but overall, VAT is probably a necessity more than an option,” he said. 

Whealy remarked VAT, as a tax model, has been successfully implemented across the world, and is likely to benefit GCC member states in their endeavour to diversify their revenues away from oil economies and petrodollars. 

"I think for it to work, the GCC needs to implement it at the same time, because that will reduce a lot of the black market issues," Whealy continued. 

“It should be interesting to see how the tax is phased in, the exemptions on it, whether there’s a consultancy period [for companies to prepare], and how various industries deal with it.

"At the moment, we know healthcare and education will be exempted, but it’ll be interesting to see how main construction projects are handled.

“You’d imagine government projects would be exempted, or certainly there’d be a rebate or a neutral position, but some of the private projects could be more difficult,” he added. 

In February, the UAE’s Minister of State for Financial Affairs confirmed the country would partake in the GCC-wide initiative to introduce VAT on certain goods and services by 2019.

The UAE is reportedly set to implement 5% VAT from 1 January, 2018, with 150 food items, health, and education exempted, Obaid Humaid Al Tayer, said.

Al Tayer said that a GCC resolution covering the tax will come into effect in 2018, but countries will have until 1 January, 2019, to implement VAT.

“There’s a span of one year flexibility given the readiness of each country,” he said, according to Arabian Business, adding each country will have the flexibility to introduce VAT within this timeframe.