New Delhi: Planning to travel around UAE next year? Your trip might get costlier as United Arab Emirates, long known for being tax-free, is bracing for 5 percent value-added tax (VAT)from next year.

Hard hit by a drop in oil income, energy-rich Gulf states will introduce VAT from January 1, on a majority of goods and services including hotels, city tours and car rentals.

The UAE is one of the six Gulf Cooperation Council states to have agreed to introduce VAT at five percent as they seek to revitalise their economies.

The UAE and Saudi Arabia had in October that said they will implement VAT from January 1, 2018, while the other GCC states of Bahrain, Kuwait, Oman and Qatar are expected to follow suit during the year.

VAT, a consumption tax imposed on goods and services, is generally paid by individual consumers to businesses, which then transfer the funds to tax authorities.

Economies in the Gulf — home to the world’s biggest exporters of oil and liquefied natural gas — took a major hit after a global supply glut triggered a drop in prices in 2014.

Their balance sheets have remained in the red despite government austerity measures recommended by the International Monetary Fund, including freezing wages, benefits and state-funded projects, cutting subsidies and raising power and fuel prices.

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