How 5% VAT will affect UAE growth?

The United Arab Emirates (UAE) and Gulf Cooperation Council (GCC)
revenue are highly dependent on global oil price, which fluctuates every time.
To reduce this dependency UAE is implementing Value Added Tax (VAT) of 5%
from 1st January 2018.
According to the report, the International Monetary Funds (IMF) says gulf
nations may be able to boost their GDP by 1.5%. This rise in GDP will attract
investments and increase the government revenue in forthcoming years.
But at the micro level, VAT rate impacts the investment through the price of
capital. Any change in capital stock will affect the production and demand for
labour that might impact standard of living for all income groups. And UAE
needs to exempt VAT on basic food items, health, education and social services
to sustain inflation level.
UAE is expected to endure movement in the trade surplus, due to the
introduction of VAT. The movement in trade surplus requires an improvement in
international competitiveness, i.e. a reduction in domestic cost relative to
foreign price. This would favour the traded goods industries which compete for
domestic markets with imports.
In the year 2011, Hungary raised VAT from 25% to 27%, making it highest in
the European Union. The Retailers like Tesco used it as an advantage by
advertising "We will not raise the price of basic food products." Retailers are
likely to use necessity goods as a lure for consumers while they will try to make
up their loose in other product categories that are considered non-essential basic
food products.
However, UAE has made good progress in recent years to diversify its
economy. The policy makers must aim at stimulating economic growth,
employment and redistribution of income with the introduction of VAT.