In its first step to reduce dependency on oil revenues, UAE introduced the 5% Value Added Tax (VAT), implemented since the 1st of January 2018.
As per government data, VAT collections totalled AED 27 billion ($7.4 billion) in 2018, compared to an anticipated AED 12 billion ($3.3 billion). This amount was also higher than the government’s projection of AED 20 billion ($5.5 billion) in 2019.
“The additional VAT receipts should help offset some of the losses to government revenues from the reduction in service fees that the government of Dubai recently implemented as part of its efforts to stimulate the economy in the face of decelerating non-oil real GDP growth.”Moody’s report
Of the total VAT collection, UAE’s federal government will retain 30 percent (AED 8.1 billion) while the remaining AED 18.9 billion will be divided amongst the country’s seven emirates.
According to the report, Dubai was the largest beneficiary of VAT, receiving approximately 60% share of the revenue attributed to the emirates and 42% of total revenue.
At this rate, the high VAT revenues could become the government’s second most significant source of non-grant revenues in 2019, following the royalties and dividends from its shares in the telecommunications sector.