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The announcement by the UAE Federal Government regarding the imposition of a Value-Added Tax came as no surprise to the seasoned analysts in the business world. The Gulf Cooperation Council (GCC) Economic Agreement in 2001 laid out the groundwork for the integration of the GCC economies and increasing congruence in the fiscal regulatory framework, based on this directive the GCC Supreme Council agreed in December 2015 to impose a GCC-wide rate of VAT pegged at 5% and started working towards a unified legal framework to facilitate the introduction of this tax across the GCC.
Naturally, the announcement of the imposition of this tax has created a lively debate on the pros and cons of VAT taxation and the potential impact it will have on business operations and the economy at large. No one can argue that the GCC states are exposed to an abnormally high risk of fluctuations in the commodities market, particularly in oil and related petrochemical products, and taxation in some form is universally seen as the principal means with which regional governments can cushion the negative impact of fluctuations in commodity prices on their budgets and spending.