Posted by: dubaibizniz | May 18, 2008

Dubai Customs vs. IMF?

Mr. Mohsen Khan seems to be upsetting Dubai Customs with statements about VAT causing a 2% inflation in the UAE. Dubai Customs’ Al Saleh rebuffed Khan’s statement, citing that they are personal observations and do not reflect the IMF’s report. Considering that the IMF report hardly touches on VAT, I’m not sure what Mr. Al Saleh’s problem is.

I’m not sure what is surprising about the VAT being an inflationary addition to the economy. If the cost of goods and services increases, it is inflationary. Yesterday I paid AED 100/- for X goods, tomorrow I’ll pay AED 103/-.

Al Saleh’s statements are your typical Arab government official rhetoric. Al Saleh says:

The evidence, however, suggests that there is no reason to expect that VAT would be inflationary, although the VAT may have a one-time effect on the general price level and may lead to a change in relative prices.

It is well-known globally that implementing VAT in many countries has significantly contributed in boosting the economy’s sustainability, as VAT is considered the ideal tax for already strong economies.

And what evidence is that? So let me get this straight: VAT is not inflationary, because it will increase prices once and for all?

While I am not disputing that VAT is a good thing for the economy, I find Mr. Al Saleh’s statements troubling. Either he is not sure what inflation means, or he thinks we are all idiots. Either way it is not good.

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