Tax expert Dinesh Kanabar says the levy is quite simple in the
UAE
With the
roll-out of value added tax (VAT) in the UAE drawing ever
nearer, some businesses and residents are growing increasingly concerned about
how the levy will affect their incomes
But the UAE’s new tax regime is very simple and nothing to fear.
The UAE and Saudi Arabia will implement a 5 % VAT from January
1,
with the other four Arabian Gulf countries expected to follow suit in 2018;
a 100 % excise tax on tobacco products and energy drinks, and a 50 % tax on
sugary drinks, will start
The introduction of VAT could generate Dh12 billion in its first
year and Dh20bn in its second year, according to Sultan Al Mansouri, Minister
of Economy, as the country moves to diversify away from its reliance on oil
revenues
VAT will affect the UAE economy,
small business owners, and the pockets of UAE residents
First there is 5 %VAT on taxable supplies, then you have a set
of goods and services that are exempt, so for example there is no VAT on
education, medical services, public transport and residential real estate.
Third you have a group of items that are zero-rated, such as airline companies,
metals and gold. So when people say the UAE’s tax regime is complicated, it
depends on what you compare it to. Yes, moving from a regime where there is no
tax to this is complicated, but if you compare it to Europe it is not at all
complicated
?If it is such a simple model, why are some businesses and
individuals getting stressed about it
It’s actually a matter of perception. So far it has been a
tax-free regime, so when you suddenly talk taxes to people they just get
stressed. But there is no need to get stressed for a number of reasons.
Firstly, you have never seen as proactive a government as you are seeing here;
they are coming out with FAQs, they are doing seminars, they are training
people and they have a portal up and running
?What are the other reasons to stay calm
The second reason is that it is a very simple law. In fact, the
compliance form is just a half page return. In India for example the compliance
is so difficult that the computer system is unable to take it and the
compliance dates keep being changed. The third is the rate itself. In India the
generic rate at which GST is levied ranges from 5 % to 28 % ; in Europe the
rate is anywhere between 14 and 16 %
?What should businesses preparing for VAT be
concerned about now
They should be looking at three things. One, how are they
restructuring the business? For example, a group has multiple entities and
one is a sourcing entity that sources the goods and gives it to a selling
entity; unless you are defined as a group under tax laws, the moment you do an
inter-group transfer there is a tax, so you are out of pocket before you
recover the tax from the ultimate customers. Those sort of inefficiencies need
to be removed. The second thing is to make your processes and IT systems
compliant so that all the provisions of law are incorporated
?What’s the third
The third, and maybe this is one of the reasons that people are
stressed out, is that today companies prepare accounts and those accounts are
not really subjected to any scrutiny by a regulator. Now for the first time a
regulator is going to look at the accounts – that means you’ve got to preserve
the accounts, you need to ensure their authenticity and you need to be worried
that when compliance happens you are ready so that if you were audited you can
substantiate whatever you are buying
?How will small businesses with a handful of
employees cope
There is a threshold limit of Dh375,000, so if your annual
turnover is less than that you are not in the VAT net at all. For smaller
businesses that are in line for VAT, they need to look at using apps – which
are being developed by private consultants – that can capture the data from the
business and do the filing for them so that the cost of compliance is not
burdensome
?What about the average UAE resident worried
about the cost of living
Is the cost of living going to go up? The answer is yes. Is it
significant? The answer is absolutely no because there is a World Bank report
that says that the expected impact of inflation is somewhere between 0.5 and
0.6 %. So that’s not earth shattering and I don’t see a dent in people’s
savings or investments
?Is there anything households can do to prepare
There is nothing they can do. Businessmen, yes, they need to
start building compliance, but for an average person, the very fact that
day-to-day items – whether houses, education, medical care or public
transportation – are outside the limit shows that the government is conscious
that people in the lower strata, whose bulk of income goes towards necessities,
are not impacted at all. Will your grocery bills go up? Yes, they will, but as
I said the expected impact is low
?So residents should view VAT as a positive move
You are moving from a laissez-faire environment to a regulated
environment and that is actually very welcome because the world is moving
towards regulation. By imposing a tax, the GCC is falling in line with what the
world is doing and I go back to the rates issue: Singapore is 7 %, Malaysia is
6 %
But the UAE is already an expensive place to
live and the perception is that it is going to get more expensive?e
It really depends on where your income goes to. If you are a
smoker, for example, and smoking is 10 % of your total spends then your costs
will go up more because of excise tax. To an extent it is the people that are
able to save after buying the necessities, that are spending on luxuries and
therefore can afford to contribute, that will be really impacted
?Are businesses ready
The answer is NO. We have seen in the marketplace that the
larger businesses are aligned and they started huge exercises on VAT
implementation months back. There are smaller / mid-sized businesses that are
now coming to grips with reality that the government is serious. There is some
expectation in the air that this is going to be postponed but the government
has been very categorical that there is no intention to postpone. So if you are
going to put it on the back burner then you do so at your own peril
?What do businesses need to have in place by
January 1
They need to have an accounting system and a billing system so
the IT infrastructure needs to be in place because every single invoice
produced from January 1 has to have that VAT component. One of the issues is
that non-compliance could invoke huge penalties so people need to be absolutely
sure that they are fully compliant – they can’t afford to take chances with
compliance.
?What trends are you noticing
There are some companies clutching at straws. A report came out
today saying that the non-implementation of VAT in other GCC countries should
not impact the UAE. People interpreted this to mean that the UAE is also going
to postpone. It is going to happen and they need to prepare
WAIT FOR MORE DETAILS ABOUT THE VAT IN UAE WITH AHG ACCOUNTING FIRM IN DUBAI AND EGYPT
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