The UAE will introduce value-added tax (VAT) on 1 January 2018 says UAE Minister of State for Financial Affairs Obaid al-Tayer. Speaking at a press conference to mark the end of an official visit to the UAE by managing director of the Washington-based IMF Christine Lagarde on 25 February.

Al-Tayer said a framework agreement was expected from the GCC Council for instituting the levy – expected to be 5 per cent on most purchases – by the end of June this year.

He told reporters that VAT would bring in an estimated AED12bn in the first year, and that it would not be levied on 100 food items, healthcare or education.

He also said that other countries can take a later date of implementation on 1 January 2019 

Lagarde emphasised the need for Gulf states to act at the same rate in introducing VAT to avoid arbitrage, when different tax laws are played against one another.

Al-Tayer said the government is “in the first phase of studying the economic and social ramifications” of a companies tax, but no time frame has been set and there is no draft law. It is not currently considering income tax.

Lagarde has used her visit to the UAE to promote the introduction of tax by oil exporting countries, as their primary source of hydrocarbons revenue starts to dry up. “Our position is quite simple,” she told media. ”To provide services you need to finance those services.” The IMF recommends indirect taxes such as VAT, but not direct taxation – income tax – in the short term, until the right structures are in place to gather that.

The UAE has built up buffers against its dependence on oil revenue, said Lagarde, which will allow it to introduce tax at a comfortable pace. Even at a low rate, VAT should generate 2 per cent of GDP.

MEED reported on 23 February that Oman’s Financial Affairs Minister Darwish al-Beloushi said the GCC states are set to introduce VAT at a rate of 5 per cent in 2018.