What is it about?
his paper investigates the impact of 19 announcements pertaining to the introduction of value-added tax (VAT) in the United Arab Emirates (UAE) on equities listed on the Abu Dhabi Stock Exchange (ADX). Using a well-established event study methodology over the period 2015 to 2018, a sector-wise assessment of the value constructiveness or destructiveness of these announcements is conducted. In addition, an estimation of sector-wise changes in systematic risk following these announcements is provided. Significant sectoral differences in abnormal returns are observed with industries such as insurance and retail showing higher sensitivity. Certain announcements are identified as exerting more impact than others. The results document the outcome of the implementation of VAT and provide guidance to other countries in the Gulf region that plan to introduce VAT.
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Why is it important?
The findings of this study have implications for academics as the evidence is mixed in regard to different sectors. In regard to other member countries in the Middle East, the findings of this study provide possible implications for VAT implementation in their jurisdictions. It is to be noted that VAT has the potential to have an inflationary effect on prices and wages, heavy compliance and administrative costs, and possible taxpayer resistance when introduced for the first time (Warren 1993).
Perspectives
The introduction of VAT had an overall positive or negative impact on the specific sector and is thus not of interest to the scope of this study. A few sectors have experienced purely negative reactions to the range of VAT-related announcements, the majority of these are not critical industries and mostly produce discretionary products that have price and demand elastic. Furthermore, the UAE government has been able to promote some sectors through various initiatives (such as free zones) and stimulate competition within the market.
Dr Krishna Reddy
Toi Ohomai Institute of Technology
Read the Original
This page is a summary of: The Sectoral Effects of Value-Added Tax: Evidence from UAE Stock Markets, Journal of Risk and Financial Management, September 2022, MDPI AG,
DOI: 10.3390/jrfm15100429.
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