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Thursday, 2 December 2021

Lawmakers could spike VAT hikes on inflation concerns

Inflation could put the brakes on VAT hikes: Lawmakers could spike proposals for a round of targeted VAT hikes amid concerns about their impact on inflation. The changes — which among other things would more than double the tax charged on crackers and sweet pastries to 14% — have been with the House for months but may now be postponed as inflationary pressures continue to build.

Prices are rising: Increasing food and fuel costs pushed the headline inflation rate to a 20-month high in September as energy price hikes, rising global commodity prices, and the impact of ongoing supply chain bottlenecks fed through to the local economy. In the same month, private sector firms reported the fastest rise in input costs in more than three years, primarily due to supply shortfalls.

Legislators are now reconsidering: The House Planning and Budgeting Committee could press pause on the VAT amendments if it believes the tax hikes will fuel further inflation, committee deputy Yasser Omar told Enterprise yesterday. The committee has not come to a final decision on whether to postpone the bill, he said, without stating when MPs could decide.

Keep your eyes peeled: Our next insight into how prices are faring will come on Sunday with the release of November’s PMI figures. Capmas and the central bank will publish November’s official figures a few days later on 9 December.

The amendments in detail: From what we know, the proposed bill would swap the 5% schedule tax on crackers and sweet pastries with the standard 14% VAT rate. Most commercial advertising would be subject to the tax instead of the 20% stamp tax on ads, and tourists would be allowed to claim VAT rebates. The rent or purchase of commercial and administrative property would also be subject to a new 1% schedule tax. It is unclear whether other VAT hikes are also on the table.

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