VAT Revenues as a Mediator Between Tax Evasion and the UAE Economy

  • Received June 27, 2025; Accepted December 14, 2025; Published December 31, 2025
  • Author(s): Mariam Abdullah Mohamed Al Matrooshi, Murad Ahmad AlZageba, Suhaila Abdul Hamid
  • http://doi.org/10.70568/IJDAFS.25.2.1.1.1

Abstract:

This paper is an attempt to investigate the mediating role of Value Added Tax revenues in the relationship between tax evasion and UAE economy. VAT is a new tax in the UAE but has quickly become key part of the country’s economic diversification and revenue generation strategy. Partial Least Squares Structural Equation Modeling (PLS-SEM) is applied to the data set of 359 cases to study direct and indirect effects of tax evasion on economic performance. The findings above reveal that the evasion has a relatively huge influence on the revenue can actually be collected from VAT, which also confirms how responsive design of the VAT system to taxpayers’ and compliance behavior. VAT collection plays a strategic role in strengthening the performance of the UAE national economy, reflecting its integration with fiscal stability and diversification policy. The fact that VAT revenues partially mediate the impact of tax evasion on the national economy implies, through mediation analysis, that the macroeconomic consequences of evasion are more transmitted by lost VAT revenue than via direct growth-related mechanisms. These findings are also in line with international studies of VAT-gap dynamics, and highlight the need to improve the tax administration efficiency, increase VAT enforcement action, simplify tax payments via digital platform and improve tax knowledge. The paper provides empirical evidence to fiscal policy literature in new tax systems, and suggests policy lessons for achieving revenue sustainability and economic stability in the UAE. This study provides the empirical analysis into the mediating role of VAT Revenues in UAE economy. It contributes to the literature by synthesizing behavioral, administrative, and economic considerations, with evidence-based lessons for improved governance of VAT systems, better tax compliance promotion approaches and long-run growth prospects within emerging tax administrations.