What is Tax?
Tax is an additional amount, which is payable by every individual to help the government in raising the revenue to pay for public services. These raised revenues will be used to pay for public services such as public hospitals, schools and universities, defence and other important aspects of daily life.
There are basically 2 types of taxes:
Direct Tax: The Tax collected by the government by the same person on whom it is imposed is called Direct Tax (Eg: income tax, corporate tax).
Indirect Tax: The Tax collected by an intermediate medium for the government from the same person that pays the tax is known as indirect tax (Eg: Retail Stores).
What is VAT?
VAT (Value Added Tax) is an indirect tax, which is imposed on most supplies of goods and services that are bought and sold. It is the most common type of consumption tax around the world and has already been implemented in over 150 countries, which include all 29 European Union (EU) members, Canada, New Zealand, Australia, Singapore and Malaysia.
It is charged at each and every step of the ‘supply chain’, which ultimately ends up to the consumer paying VAT, Businesses plays the role of a collector on behalf of the government.
What is the difference between VAT and Sales Tax?
There may not be any observable difference between a Sales Tax and a VAT for common people, but there are some key differences, which makes their working a bit different from each other. Sales tax only gets imposed on the final sale to the consumer, while value-added tax works for both Goods and Services. Moreover, Sales tax is only imposed to the final sale to the consumer.
Many countries chose VAT over the Sales tax for many reasons, in which the most important reason is that VAT is considered as a sophisticated approach to taxation, because of the whole system from consumer to the government work under this in a well-arranged manner.
Why is the UAE implementing VAT?
The UAE government offers many public services to the residents such as hospitals, roads, public schools, parks, waste control, and police services, which are paid by government funds. VAT will provide an additional source of generating revenues for the government to provide high-quality public services into the future.
Why does the UAE need to coordinate VAT implementation with other GCC countries?
The UAE is basically a part of a group of countries, which are connected through “The Economic Agreement Between the GCC States” and “The GCC Customs Union”. The GCC group has previously too worked together to implement new policies.
When will the VAT go into effect and what will be the rates?
VAT is said to be implemented across UAE on 1 January 2018, and the rate is likely to be equal or less than 5%.
How will the government collect VAT?
The businesses and retail stores will be responsible for documenting their business income and costs carefully along with the VAT charges. The registered businesses will charge VAT to their consumers on the goods or services they purchase from the suppliers. Then the difference between these sums is to be paid to the government. This is the way, government collect VAT.
Will VAT cover all product and services?
Except for a limited number of reliefs, VAT will be applied to the majority of transactions in goods and services.
Will the cost of living increase?
Yes, the cost of living is expected to increase a little, but this will totally depend on the lifestyle of any individual. If you’re spending on the things, which are affected by VAT then you will surely see the change in your cost of living.
What measures will the government take to ensure that businesses don’t use the VAT implementation as an excuse to increase prices?
VAT is being implemented to improvise the economic base of the country. So, the special rule should be implemented, which will make clear that how much value-added tax you are paying for each transaction.
How can one object to the decisions of the Authority?
Any person, who is not satisfied with a decision of the Federal Tax Authority, can make an objection request to the FTA to reconsider the decision. This should be done within 20 days of the receipt of original decision notification, and the FTA needs to provide its revised decision within 20 days from the date the request was made.
If the taxpayer is still not satisfied with the FTA’s decision, he/she can further file an objection to the Tax Disputes Resolution Committee within 20 days from the date of the revised decision. The committee will then consult and come up with a decision within 20 days from the date of re-objection.
If the person is not happy with the committee’s decision, he can file a request to the competent court within 20 business days from the date of receipt of notification of the committee’s decision.
When will more details on Value Added Tax be available?
We expect that more detailed information by the government will be revealed soon.