The UAE Government has finishing drafting plans to introduce a federal sales tax, better known as value-added tax (VAT), according to reports published on Thursday.

Al Ittihad, the Arabic-language sister paper of The National, said VAT would be levied at a higher rate on luxury goods, alcohol and tobacco while basic goods and essentials would be exempt.

Last month, Younis Haji al-Khouri, under-secretary at the ministry, said the UAE, seeking to bolster state revenues, was likely to complete the drafting of laws introducing VAT in the third quarter of this year.

Al Ittihad said the government did not specify what the tax rate would be, but the IMF has recommended that the UAE set VAT at about 5 percent.

It is not known when or how the government would introduce VAT. Companies and consumers would be given up to two years to adjust to the new tax rules.

The government also plans to introduce a corporation tax, Al Ittihad reported, but did not provide details.

Introducing corporate tax and VAT in the UAE, which has promoted its low-tax environment to investors, would be a major shift in policy, and politically sensitive.

Reports suggested it will to be some time before the proposals become law.

Earlier this month, the IMFrecommended the UAE implement a special excise on cars and broaden the corporate income tax, as well as push ahead with the planned tax on consumer goods, to help counter oil revenue losses.

The organisation has told the country’s economists the taxes could generate an additional 7.4 percent of non-hydrocarbon domestic product, replacing some of the $42 billion the UAE is expected to loss from oil export revenues this year, compared to 2014.