World Bank expects limited growth for UAE amid escalating government taxation

The economic crisis in the UAE is worsening and its indicators highlight the World Bank’s forecast for a limited growth rate in 2019 that will not exceed 2% of GDP.

The World Bank highlighted in its annual report that the UAE is facing a severe economic recession, especially in light of the real estate slowdown, the great tourism decline, the contraction of transit activity and the decline in the price of oil.

The UAE central bank has slashed the country’s economy by 2% of GDP this year, not by 3.5% according to previous estimates published in March.

As the economic crisis escalated, the regime extended the selective tax to e-cigarettes, associated liquids and sugar-added beverages.

A statement from the UAE Ministry of Finance explained that the tax would come into effect on December 1 and that it was part of an effort to reduce “harmful consumer practices.” Tobacco products, energy drinks and soft drinks are already taxed in the UAE.

In 2017, the UAE introduced a 100 percent selective tax on tobacco products and caffeine drinks, a move observers believe is aimed at offsetting the sharp decline in public revenues. The government also imposed a selective tax on soft drinks and sugar at 50%.

According to the Dubai Chamber of Commerce, the number of commodities covered by the selective tax at the time was about 1610, of which 60% are classified as soft drinks products, 26% are included in tobacco and its derivatives, and about 14% are included in the energy drinks segment.

With the collapse of oil prices at the end of 2014, most of the Gulf states, especially Saudi Arabia, the UAE and Bahrain, to cover the deficit in spending by raising service fees and the introduction of new taxes, which reflected negatively on the citizen and led to shrinking purchasing power.

In early 2018, the UAE and Saudi Arabia introduced a 5 percent VAT. The VAT is indirect, paid by the consumer and imposed on the difference between the purchase price from the factory and the selling price to the consumer.

This tax applies not only to goods and services in the UAE, but extends to recruitment fees from abroad, according to the UAE Federal Tax Authority (government), noting that the tax on recruitment fees will be paid by the final beneficiary.

The UAE has announced the beginning of liberalization of fuel prices in the country as of early August 2015, and the adoption of a pricing mechanism at international prices.

Aside from taxing, the UAE has resorted to borrowing to cover expenses at a time when financial resources are falling due to falling oil prices and rising war spending.