VAT on Real Estates in UAE

The value-added tax (VAT) will be introduced in the UAE from January next year. The online registrations for the VAT eligible businesses have already begun on the FTA website. Among the industries that will be affected by VAT, real estate sector is the major one. In this article, we will try to understand the impacts of the new tax system in this industry.

Real Estate Definitions for VAT

Supply: Any sale, lease or transfer of rights of any property will be considered a real estate supply for the purpose of the tax.

Residential building: Any building or a part of a building that is intended to be used by individuals as a place of residence. A building cannot be considered residential in any of the following cases:

• Any place or building that is not fixed to the ground or can be moved without damaging it.
• Any building being used as a hotel, hostel, hospital, motel, bed, and breakfast or any related service.
• A building that is constructed without permission or proper authority.
• Service apartments where services are also provided, in addition to accommodation.

Commercial building: Any building or a part of it which is not being used as a residential property is a commercial building. Hotels and shops are the examples of it.

VAT on Real Estate

VAT on residential properties

The first supply/sale of a newly constructed residential building will be treated as a zero-rated supply for VAT, given that the property is sold within three years of its construction. However, the subsequent supplies of the same property shall be exempt from tax.

VAT on commercial buildings

The tax will be applicable at the standard VAT rate of 5% on the supply of all commercial properties such as offices, hotels, retail, etc.

There is no tax on the rental of residential properties, however, the rent/sale of a commercial building is subject to 5% VAT.

VAT on mixed-use buildings (residential and commercial)

The supply of a residential part of a building shall be zero-rated (the first supply) or exempt. The supply of a commercial part of a building shall be subject to 5% VAT.

That means the sale/rent of a mixed-use property should be treated accordingly. The tax paid on the taxable portion may be recovered.

VAT Registration for Real Estate Owners

The owners of residential properties are not required to register for VAT unless they have any other taxable business activities.

However, the owner of a commercial property (or a residential property being used for commercial purposes) will have to register for tax if the supplied value over the past 12 months is more than the VAT threshold of Dh 375,000 or is expected to reach this limit over the period of next 30 days.

Recovery of the tax paid on a real estate property

The value-added tax also has the mechanism of tax refund in specific cases.

The VAT paid by the owner of a residential building in respect of expense related to tax-exempt supplies of the building will not be recoverable or cannot be charged from the customers. The owner of a commercial building can recover the VAT paid in respect of the supplies.

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Small Businessmen in UAE Seek Reassurance on VAT

As the UAE has announced the official date of the implementation of the VAT, i.e Jan. 1 2018https://a-h-g.net/en/, the small businesses want to know the benefits of the upcoming tax regime and what change it will bring in their lives. The Entrepreneurs who are into the process of introducing specific software for the VAT in UAE said that the value-added tax system will boost the economy of the GCC that has been hit by the downfall of the oil prices in the recent times.

They believe that the businesses will be given special treatment in the long term, after the imposition of the 5 percent tax on goods and services in January.

Mona Tavassoli, the founder of Mom Souq and Mompreneurs, which caters to female entrepreneurs in the Middle East, hoped fruitful changes would be possible in the long run that it help in the growth of small businesses.

“One of the changes we are hoping to see is to have some difference between a small business and a huge international company because for now, they pay the same fees when starting up and a lot of entrepreneurs find it very costly,” she said.

“It’s not as if people won’t do business because of the VAT but for a start-up to go through all those initial costs and then pay 5 percent on top, it could be something that will affect them.”
The Finance Ministry has said it would give businesses a proper directive to bring in the VAT, and education has begun.
The important threshold for VAT will be businesses with yearly turnovers of at least $100,000 (Dh367,000), said David Stevens of E?Y accountancy.

“Only very small businesses will not be part of the VAT system,” Mr. Stevens said.

Primary outlays will cover changing operations, systems and communications.

“If this implementation is done well from the outset, VAT will become part of the everyday operations of businesses with very minimal additional ongoing costs,” Mr. Stevens said. “The key is to get the implementation right.”

In some nations the requirements for small businesses are simplified, said Jeanine Daou, of PricewaterhouseCoopers.

“The impact might be significant especially for small businesses if they are not prepared and do not have the right controls in place to be able to comply,” said Ms. Daou.

“Some countries introduce simplification for small and medium businesses in terms of recording and documentation requirements.”

Preparation can be easy, said Marie-Claire Accordino, founder of The Accounts Dept, which provides bookkeeping services for small and medium-sized businesses.

“The most important is to keep a set of accounts,” said Ms. Accordino. “A lot of businesses here do not keep accounts. The truth is that resources are limited as a small business and they want to try as much as possible things. 

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The tax complexity in UAE, before and after VAT

The UAE has secured top position across the globe in respect of ease of payment of taxes, it happens due to lesser taxes imposed in the country. However, experts are not sure about the upcoming VAT regime and what its effects will be on the country’s ranking in terms of tax complexity. The government authorities are trying their level best and have set-up digital platforms and regulations to provide assistance under the new regime.

According to the report, named the Paying Taxes 2018, released by World Bank and PriceWaterhouseCoopers, as of now, to file taxes in UAE, it hardly takes only 12 hours as compared to other countries; 29 hours in Bahrain, 47 hours in Saudi Arabia, 55 hours in Luxembourg, 63 hours in Switzerland and 64 hours in Singapore

''We will have to see after the VAT implementation whether it affects the country’s ratings. To my understanding, the VAT filing and payment are going to be electronic; even the procedures are based on the best practices for quick VAT refund and risk-based audit. We expect the position of UAE to remain strong''. An expert said.

In spite of the fact, the UAE is a newcomer in the VAT law, the country has adopted simplified, logical rules and regulations under VAT.

“This has been done by maintaining a single rate of taxation at five percent and keeping very limited activities in the zero-rated and exempt category. Also, the tax return mechanism is very simple where the information required is at a summary level. The tax authorities have facilitated an online return filing mechanism making it convenient to file the return”, said Chand.

Joanna Nasr, Paying Taxes leader and private sector development specialist, World Bank, said that it is uncertain how VAT Law will affect the UAE’s country rankings on ease of payment of taxes – where it secured 21st position. But the government authorities are going in the right direction and have established the digital platform for filing returns and taxes under VAT law.

The report revealed by World Bank examines the complexity (and ease) of tax payment process in 190 countries. It reveals that 162 out of all countries have implemented a VAT system, with only 107 economies providing the facility of VAT refund. There is no VAT refund service in 51 economies, including South America and Africa.

According to the report of Paying Taxes, the time taken in payment of taxes is about 240 hours on the worldwide level, 195 hours in Arab League and 161 hours in European Union countries.

The UAE has secured high rankings in terms of filing returns due to fewer taxes levied in this country as compared to other parts of nations.

“We’ll see how the whole system is implemented in terms of compliance and how easy online platform is going to be for the filing of tax return, and what is the data that is needed, and how quickly companies can submit data. All this will matter.” The UAE government is working to simplify the taxation process under VAT and will start the digital platform for filing returns and taxes.

According to the reports, it is identified that the UAE presently maintains a strong position in respect of number of payments at four- which is considered second best across the globe – after Saudi Arabia (3) – and ahead of Singapore (5), New Zealand (7), Switzerland (19) and Luxembourg (21). The above ratings are in comparison with an average of 8.7 payments in GCC, 12 in European Union (EU) countries, 20.5 in Arab League and 24 Globally.

The Gulf Cooperation Council (GCC) carried out well in terms of filing returns in ease of payment of taxes in the regional countries. After the implementation, VAT will enhance the number of taxes in UAE, and also may have a positive impact on payment and time parameters.
So far, the Middle East is the easiest area in terms of filing taxes. It happens only due to advanced technology and innovation, which reduces the burden of tax compliance for the businesses.

A 50% 'sin' tax on soda in Dubai could have global consequences

• The United Arab Emirates now taxes sugary drinks, partly as a way to lower obesity and diabetes rates.
• Other countries are considering similar taxes, and are watching the UAE's experiment to see if it works.
• Past soda taxes have had little success in improving public health, and evidence of a link between decreased soda consumption and decreased obesity is limited.

The United Arab Emirates has instituted a hefty tax on sugary drinks and cigarettes: 50% on soda and 100% on energy drinks and tobacco products. 

The tax, which went into effect October 1, has several goals. The first is to generate revenue for the UAE government as global oil prices remain low, according to Gulf News. The second is to improve public health, since the UAE has one of the worst diabetes rates in the world. 

Today, 19.3% of the UAE population (nearly one in five people) between the ages of 20 and 79 have type 2 diabetes. The UAE's diabetes figures have gotten worse in recent years, according to the International Diabetes Federation — in 2013, 10% of the population had diabetes. By 2040, the IDF suggests that the prevalence of diabetes in the UAE could double again.

Many have dubbed the new regulation a "sin" tax, since tobacco, caffeine, and sugar are often pleasurable, unhealthy, and addictive. In the days before the tax took effect, shoppers in the UAE stocked up on drinks and tobacco products, The Associated Press reports. 

While there's not enough evidence yet to know whether such taxes lead to a decrease in diabetes or obesity, some research has found links between high levels of sugar in people's diets and high levels of diabetes. A 2013 study at Stanford University examined data from 175 countries over the past decade, and found that increased sugar in a population’s food supply was linked to higher rates of type 2 diabetes. Other research has also suggested that obesity puts people more at risk for type 2 diabetes.

A 2017 Asian Development Bank study found that a 20% tax on sugar-sweetened beverages was associated with a 3% reduction in overweight and obesity prevalence in China, with the greatest effect on young men in rural areas.

Several US cities have instituted soda taxes, with some positive results. In early 2017, Philadelphia, Pennsylvania instituted a 1.5 cent-per-ounce soda tax that has brought in more than $52 million so far, which will go toward expanding education programs and renovating parks, recreation centers, and libraries.  Researchers in Berkeley, California saw a 10% decline in sugar-sweetened drinks after their city instituted a one-cent-per-ounce soda tax in 2015, but there wasn't enough data to draw conclusions about health outcomes there.

Results in the US are complicated by the fact that soda consumption nationwide has been dropping since 2000 (though obesity rates have stayed the same). The effectiveness of such taxes also depends on where they are imposed and how high the levy is, and some global health experts have noted that soda taxes disproportionately affect low-income people.

As the UAE's soda tax experiment progresses, other countries— including Britain and Thailand, as well as cities in the US — will be watching to see if it's worth implementing similar ones.

Whether the tax will fulfill its goals remains to be seen.

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How will economic visions increase competition among GCC Countries?

The economic vision statement, which was released by the GCC governments recently, is expected to bring a healthy competition among countries in the region. It will also diversify the economies and lower oil dependency in these countries.

The following economic visions were announced by the GCC countries with the aim to make the economic conditions stronger and reduce the dependency on oil.

• UAE – vision 2021
• Iman – vision 2020
• Saudi Arabia – vision 2030
• Bahrain – vision 2030

The number shows the year by which a country is expected to achieve the vision.

Saudi Arabia is one of the GCC countries that is going to liberalize the free zones, and other services like entertainment, tourism and trade sectors as a part of its vision 2030. Experts believe that these steps will surely decrease the region’s dependency on petroleum products for revenue and increase competition.

Impacts of Economic Visions

At present, there is minimal trade between GCC countries, most of which is re-export to countries such as Iran, Africa, and others. “If the countries get their plan implemented under their respective visions, there will be more competitive in attracting investments,” said Dr. Fahad Alturki of Jadwa Investment Company.

The oil sectors of almost every GCC country saw a decline in the past couple of years, especially in the first half of 2017, however, the non-oil sector reported a growth. The non-oil industry of Saudi Arabia recorded marginal growth of 0.5 percent in the first half of the year. It is not much but points toward a positive increment by the next year.

According to Dr. Alturki, the oil prices are expected to drop to around $53 this year and even more in 2018. The current price is $60 per barrel. “It is hard to predict oil price as shale production is expected to increase which might push prices lower while inventories are expected to drop and could push oil higher. Then there is geopolitical situation also to watch for,” he said.

The experts at DMCC believe that the vision of the regional governments is clear and for good. The governments want to shift their focus from the traditional oil-based revenue sources to other revenue options, including tourism, infrastructure, trading, and factories. “It’s about expanding market rather than eating into each other. We have seen synergies in the regional leadership. There is $22-billion trade between the UAE and Saudi and it’s going to multiply if economies are going to open up.”

These are uncertain times for the economies of GCC countries and so, they are forced to look for other revenue opportunities. “It is not about what is happening outside, but how firms and individuals respond to that. It is all about how you position yourself and plan a strategy to deal with the situation.”

VAT and Economic Visions for GCC

VAT, which is being introduced in the GCC countries from the next year, is also going to have significant impacts on the economy of these regions. VAT is being launched as an alternative source of revenue for these countries. The authorities have alerted businesses to be ready for VAT as its impacts may go beyond the accounting and financial departments of organizations.

While some GCC businesses have already started preparing for the VAT, many other businesses are still hoping that the tax may not be implemented. As per the latest data, only about 11 percent of companies are fully prepared for the new tax regime. The thing is that it is going to be difficult for the companies that are not prepared or not even preparing for VAT. 

VAT in UAE: Tax Rates on Various Food Items

The Value Added Tax, which is being launched in the UAE and five other GCC countries from the next year, includes a tax at the fixed rate of 5%. The businesses and consumers in the regions are getting themselves familiar with the laws and provisions of VAT as the launching date approaches. Meanwhile, an update regarding the tax on foods has surfaced recently.

VAT on Foods

The Federal Tax Authority (FTA) has recently confirmed that all the food items will be taxable under the VAT, which will be implemented on January 1, 2018.

Earlier, the government had commented that some essential food items such as flour, eggs, etc would be kept free of tax under VAT. However, the latest update confirms that the FTA is planning to levy a tax on all types of food, including basic food items such as bread and rice.

It was expected that the government will keep certain food categories exempt, or zero-rated, from the VAT that will be levied at a fixed rate of 5 percent. The categories put under the zero-rated slab will still be under VAT, but their supplies will not be taxed. The government had the right to treat any food item as a zero-rated supply, however, the final law doesn’t include foods. 

It is expected that the standard tax rate of 5% will be levied on all food items. The confirmation will be provided soon.

Zero-rated supplies

The government had issued, in August, a list of products and supplies that will be kept under the zero-rated slab of the VAT. The list included the following items:

• public transport
• investment-grade precious metals
• the supply of crude and natural gas
• commercial airlines
• education and healthcare
• Financial services

The selection was done based on the nature of the product/service. Most of these items are beneficial for the general public. Some other categories like financial services have been kept in this slab mainly because it would have been too complicated to define tax on them.

Note: Food items would not be zero-rated under VAT.

In 2015, when the news of VAT was first confirmed by the government, it was also recommended that about 100 food items would be zero-rated. This changed when the FTA announced to put all food categories under the same standard VAT rate, leading to a confusion among the businesses and the public.

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Last date for filing excise tax returns and paying dues in UAE

Excise duty was implemented by the UAE on October 1. The excise tax provision requires registered businesses to file monthly returns on or before 15th of every month. The last date for UAE businesses for filing their October tax returns is November 15, 2017. The Federal Tax Authority has requested companies to file their returns on time, otherwise, penalties would be levied.

The excise duty tax is applicable to the following items:

• Carbonated drinks – 50% duty
• Tobacco products and energy drinks – 100%

The excise duty returns are required to be filed by the 15th of every month for the previous tax month. The UAE tax law has the provision of administrative penalties for non-compliance with excise deadline rules.

Khalid Al Bustani, director-general of the Federal Tax Authority, said, “Since the beginning of November, businesses registered for excise tax have been consistently complying with their requirements and deadlines, filing their tax returns on time. We urge those who haven’t done so yet to file their returns before the deadline of November 15, 2017, and settle the payable tax stated in the submitted excise tax return, in order to fulfill their obligations according to the tax procedures in the UAE.”

Penalties for Excise Tax Law Violations

The Federal Law No. (7) of 2017 mentions the violations relating to tax procedures in the country and Federal Decree-Law No. (7) of 2017 mentions excise tax violations.

The Cabinet Decision No. (40) of 2017 includes the administrative penalties for any of these tax law violations.

In case of delayed or no submission of tax returns within the given timeline, the registrant will have to pay a penalty of Dh1,000 for the first offense and Dh2,000 on repetition within 24 months.

If a taxable person fails to pay his/her due taxes, as mentioned in the tax return, within the specified timeframe, he/she will also have to pay a late payment fine of 2 percent of the due tax amount, within 7 days from the deadline, in addition to the penalty. If a taxpayer fails to pay the due tax amount even after the seventh day from the deadline, the late penalty applicable will be 4 percent of the unpaid tax, for one calendar month from the deadline. After that, a daily penalty of 1 percent will be charged on the due amount, subject to a maximum of 300 percent.

There is also a penalty on the submission of wrong/misleading data in the tax return. Businesses are required to provide the accurate data in their excise returns, otherwise, a fixed penalty of Dh3,000 will be charged in addition to a percentage based penalty of as much as 50% of the unpaid tax amount.

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Tax Experts Say VAT will Increase UAE insurance costs

According to Tax Experts, the United Arab Emirates’ (UAE) judgment to impose value-added-tax (VAT) on non-life insurance is expected to push up the cost of property premiums, health, and motor.

The UAE is the largest insurance market in the Gulf Cooperation Council (GCC) region, where motor and health policies value for 70 percent of the market. The Gulf Arab state’s insurance sector got into trouble by the fall in oil prices, and UAE companies have been dealing with the increase in the cost of motor insurance and health insurance.

Back in 2014, the UAE government made it compulsory for all the residents to get health insurance. It also made an immediate hike of 100 percent on the car insurance from 2017 beginning.

Everything other than life insurance will come under VAT.

Health, vehicle, (and) property insurance… the cost of purchasing these products will increase by five percent.

Randhay said so and so soon after attending the UAE Ministry of Finance’s first VAT awareness workshop which was held last month. The events are meant to educate tax companies ad businesses ahead of the implementation of VAT, which is likely to go effectively from January 1, 2018.

Life insurance will be treated as an ‘exempt supply’ while non-life supplies will be rated standard and will be liable for VAT rate of 5 percent.

The major difference between the exempt and zero-rated supplies is that the providers of goods and services that are zero-rated can reclaim their input VAT on their own cost, but suppliers of exempt goods can’t reclaim their input VAT.

Younis Al Khouri, under-secretary at the UAE’s finance ministry, said that 5 percent VAT is likely to be implemented together across the six nations of the Gulf Cooperation Council (GCC) starting January 1, 2018. He said that sectors like health and education might be provided special treatment through zero rating.

Randhay said that health insurance does not count under the health sector. “VAT is not a cost to the insurance companies,” Randhay clarified. “It’s a cost to the public, which are the companies and individuals.”

He added that the health insurance provided to the employees by the companies with being offered at marginal cost.

According to the UAE’s Insurance Authority website, In 2016, the UAE insurance sector reported Gross Written Premiums (GWPs) of 40 billion dirhams ($10.89 billion) while GWPs stood at 37 billion dirhams in the UAE in 2015 and 33.4 billion dirhams in 2014. 

Impact of VAT on Automobile Industry in UAE

The automobile industry in UAE is facing a tough time due to excess stock and is gearing up with new VAT era carefully. Stakeholders consider that the final legislative framework of VAT agreement could provide some clarifications for the operational purposes, for imported and local vehicles.

Currently, several car manufacturers and dealers are making the automobile industry highly competitive specifically for the SUV, mid- size and SUV segment. Car manufacturers and dealers are trying to lure customers just by providing a discount on the new purchase, loan facility, low maintenance cost and free insurance for the first year. Dealers are doing this just because to clear out the available stock before the introduction of VAT in UAE.
It is estimated that a number of people using cars in UAE are expected to grow at a rate of 5 per cent CAGR approximately 10.3 million in 2015 to 13.2 million in 2020.

After the implementation of VAT from 1st January 2018, it will impact the car industry in both short term and long term. In the long term, the prices of cars will increase and VAT will be applied on sales of new cars. In the short term, this may lead to a rise in demand for cars before the introduction of VAT as the buyer is trying to beat the price rise. This could provide an encouragement to the car manufacturers towards the end of 2017 and they might offer some attractive offers to their potential buyers.

Automobile industry players are fearing about the introduction of VAT and believe that it will impact the sales of cars just because the price of cars will go up after the implementation of VAT in UAE. Currently, automobile sector is focusing on tactical offers and not expecting to stop in the future. Yet VAT framework agreement is not disclosed by the government and we are eagerly waiting for the VAT framework agreement, wondering how much tax will be levied on cars. We expected that buyers or customers pre-planning their vehicle purchasing decision to make use of the five percent savings.

The implementation of VAT is a common phenomenon for the development of the economy and currently, VAT is implementing in several others countries. So VAT is a new concept only for UAE members not for other countries. We do not anticipate any noticeable change in demand once VAT is embedded into the pricing mechanism of the vehicles.

Car manufacturers experience a significant rise in sales of cars. As users replace their existing cars with newer models before and after the year- end. Users will purchase the newer model of cars before the implementation of VAT to avoid 5 percent tax. Car manufacturers or dealers are trying to sell as many cars before December 2017 at pre- VAT prices. Although, car dealerships are trying to evaluate sales campaign to clear the available stock of 2017 models and pre-owned cars in anticipation of the introduction of VAT.

At present, the demand for cars in UAE is low and the supply or available stock of cars is high. It is affecting the automobile industry and making the sector think about clearing their available stock before December 2017.

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UAE’s Economy growth and VAT

A recent survey conducted by the KhaleejTimes of the top UAE executives shows that most of the CEOs are confident about the health of the country’s economy. The survey reports that the chief executives of major enterprises in the country believe that the economy will continue to grow thanks to the release of VAT system, and a stable political and business infrastructure across the zone.

UAE growth parameters

About 70 per cent of the UAE-based CEOs are confident in the country’s ability to continue providing a strong business environment to the local and foreign companies. The increase in business owing to the upcoming 2020 Dubai Expo is also a sign of the strong economic status. Around 25 per cent of the remaining CEOs are also confident in the stability of the economy but not too much in the growth scenarios. The remaining respondents believe that the UAE’s economy might fall in the coming period.

For many years, the UAE has been a trading hub for re-exports because of its transparent and well-developed business infrastructure and ample investment opportunities, which will be further fueled by the launch of the value-added tax (VAT). Many country CEOs even believe that the friendly policies of Dubai’s government will be a major factor behind this growth.

Many global financial institutions are also projecting an increase in growth for the UAE economy in the coming year as compared to this year. Euromonitor International predicts a jump of 4.4 per cent, while Moody’s Analytics suggested that the economy might see a growth of around 3.8 per cent in 2018. Both the Emirates NBD and IMF have forecasted a growth scenario of 3.4 per cent, while Citigroup and the World Bank have projected 3.3 and 2.5 per cent increase respectively.

The Expo 2020 is also expected to have a positive effect on the country’s economy resulting in improved global equity markets, an increase in the number of tourists to Dubai and other places in UAE, and so on.

One of the reasons for the recent decline in growth was the hike of crude oil prices, which is now recovering back, resulting in an improved confidence among retail investors. The increase in construction activities and consumer spending and growth of the economy in no-oil sectors are other factors responsible for increasing investors’ confidence in the UAE economy.

The role of VAT in UAE’s Economic Growth

The UAE government is all set to launch the VAT system with 5% tax rate on a number of consumer goods and services. A few items have been kept out of the VAT coverage.

The survey reveals one or two things about the impacts of VAT on this projected growth scenario. Most businesspersons are confident that the implementation of VAT will bring positiveness to the existing system by diversifying government’s revenue sources. It is also being believed that the consumption rate might see a hike in the pre-VAT months while it may temporarily decrease after the implementation of the new tax system.

About 75 per cent of the UAE companies are planning to fully pass on VAT liability to consumers while the remaining firms may do it partially as and how suited. The survey also indicated that around 24 per cent of the UAE businesses are already prepared for the new tax system while the remaining 76 per cent are still working on it.

VAT is expected to give the UAE economy a U-turn in terms of growth and new opportunities. The new source of revenue will allow the government to deal with the inflation and other related problems. The highest impact will be on businesses that have been exempted from VAT as they will now have to bear the complete tax liability passed on to them by their suppliers and have no option to claim a refund. However, they can further pass some or whole of the increased cost (due to tax) to their customers.

Growth sectors in UAE

The following UAE business sectors may also report a growth (or decline) in the coming period.

More jobs

According to the report, 86 per cent UAE companies are planning to hire in the last quarter of 2017 while the other 14 per cent will not be hiring any more personnel this year.

Recovery of oil price

Many businesspeople are also expecting a recovery of oil prices. About 37 per cent of professionals believe that oil prices may drop to $50 or lower over the coming months. Around 16 per cent expect oil to cost around $40 or lower while around 26 per cent expect the oil cost to be around $60 per barrel.

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Difference Between Excise and VAT

Excise vs VAT

For any government to function effectively, it needs revenues to carry on with its responsibilities. These revenues are generated through taxes of various types that are categorised into direct and indirect taxes. While income tax is a direct tax, both excise and VAT are types of indirect taxes and constitute a bulk of revenues generated by the governments. While there are many categories of items on which excise and VAT are applicable, in general excise is levied on goods manufactured while VAT is levied on the sale of a product or service. Both excise and VAT may be payable on the same product. While excise is paid by the manufacturer, a vendor collects VAT from the end consumer who has to pay this amount to the seller.

Excise

Excise or excise duty is a tax levied by the government on goods produced for sale in the country. It is different from customs which is a tax that a buyer pays when he imports goods from other countries. As such, excise duty is an inland tax. This is an indirect tax which implies that the manufacturer sells it at a higher price than was incurred on production thereby recovering the tax paid on its manufacture. Excise is always in addition to VAT which is paid by the end consumer.

This can be illustrated with an example. Suppose a manufacturer produces something that cost him Rupees 100. Now he will have to pay the excise tax applicable on the product then he sells it to a vendor at a higher price, say Rupees 120. Now the vendor, when he sells it will collect VAT from the customer. Both these taxes are applicable on the same product.

VAT

VAT is the value added tax and is known as consumption tax. It is paid by the buyer and not the vendor who has already paid the excise duty to the manufacturer. However, the vendor has to pay the difference between these two amounts and is allowed to keep the rest to pay for the input tax he has already paid. VAT is almost like sales tax in the sense that it is paid by the end customer. However, it is different from sales tax in that it is collected only once in this chain from the end consumer. The VAT approach has put an end to evasion of sales tax as it gives incentive to the seller when he charges VAT from the end customer.

Difference between Excise and VAT

Both excise duty and VAT are indirect taxes that add to the kitty of the government. In fact, excise and VAT form a bulk of the revenues generated by the government. However, the two taxes are different.

Excise is the tax levied on the manufacture of goods

VAT is the tax levied on consumption of goods

If the manufacturer does not sell and uses the good himself, he does not have to pay any excise duty. But since he sells it as a higher price, he has to pay the excise tax. VAT is not paid by the vendor who purchases the goods from the manufacturer but by the end consumer in the chain. The vendor has already paid excise duty to the manufacturer who deposits it to the government.

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UAE Consumer Electronics Sales Will Fall

Perhaps, the whole world is on the verge of witnessing the economic slowdown, earlier, news from India was declaring economic slowdown and now the report of the UAE has emerged sating the same. An industry expert from the gulf news has reported that the consumer electronics industry in the UAE is expected to fall by 0.23 percent to Dh11.95 billion, compared to Dh11.97 billion last year

Ahmad Bakr, the research analyst at Euromonitor International Middle East, has said that sale figure is more than the last year but, the profit has dropped due to the decreases in average selling price.

“Volume is expected to register a 1.8 percent growth but it is lower than last year. Volume for this year is expected to be 12.65 million compared to 12.4 million units last year. The reason is due to the overall slowdown in consumer electronics market. Small appliances are witnessing a negative growth,” he said.

In the electronics goods, there is a significant fall in the laptop segment as more and more people are nowadays using smartphones. However, gaming laptops and architect portable workstations have seen growth in the sale. Among the other segments which saw the growth in the sale are action trackers and natural light-emitting diode (OLED) TVs.

“The fastest growing category under portable consumer electronics is activity wearables due to growing activity awareness and healthy lifestyle among the people. Wearables, including trackers and smartwatches, are growing 60 percent in volume and 32 percent in value,” he said.

OLED TVs has seen a growth of 28 percent in volume, it’s because many new players have entered the market. It must be noted that in UAE, KG, is still the number one electronic’s company in the OLED TV space. But, last year Sony, Loewe, Toshiba, Grundig, Philips, Bang and Olufsen and Panasonic have entered this market. He said that tablets are seeing a growth of 1.3 percent while home cinema and speaker systems are seeing an 8.9 percent growth.

“Bluetooth speakers are growing 24 percent in value but smartphones are growing at 3.2 percent in volume but lower compared to 9 percent last year but in terms of value, it is witnessing a slower growth of 4.18 percent,” he said.
He included that cameras in smartphones have been enhanced and hence resulting in the lower sales report of DSLR and analog camera. The sale report of the camera states that there is a drop of 9 percent in volume and 10 percent in value. Apart from these, the Camcorder sales are expected to fall by 24 percent in volume and value both.

VAT is presumed to slow down the economy of UAE for the first three months of implementation. According to many industry experts, the upcoming VAT in UAE will impact the economy of the nation adversely and the first three months will be the hardest. It’s worth mentioning that GCC-wide value-added tax (VAT) is scheduled to launch in 2018 in UAE.

“Consumers are very pessimistic and very scared and that is going to hit consumer confidence in a big time. But when VAT comes into play and consumers see that the prices have not increased much, except for big appliances and big TVs, they will go and buy it but it will impact in the first quarter of next year,” said Ahmad Bakr, research analyst at Euromonitor International Middle East.

Euromonitor anticipates that sales will be boosted from June or July. “People will buy their products before VAT is introduced and that will slow down the industry for the first three months,” he said.


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