© Provided by Khaleej Times VAT in UAE: How it will impact your pocket?
The business community and auditing and tax professionals have welcomed further clarity in value-added tax (VAT) following the Executive Regulations and believe that there won’t be much impact on consumers as the tax rate is quite low.
They, however, noted that all those businesses – especially SMEs – and individuals who were under the impression of the delay in the implementation of VAT must proceed with efficiency and promptness as the Executive Regulations have also come out and delay will result in penalties.
His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of UAE and Ruler of Dubai, last week approved Executive Regulations for VAT, which would come into effect on January 1, 2018. According to auditing professionals, most of SMEs – especially groceries – are not yet ready and will be struggling to meet the deadline. However, they do not see a major impact on consumers’ spending trends.
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According to Naveen Sharma, chairman of the Institute of Chartered Accountants of India (ICAI), Dubai Chapter, almost all sectors have been taken cared of under the Executive Regulations and there are no surprises.
The regulations have clarified about all fenced and non-fenced free zones and about imports and exports, Sharma said, adding that, for example, the Dubai Multicommodities Centre is an open free zone, where no customary boundary is there and goods can move in and out easily.
Another important clarification came with regards to real estate, where companies have to maintain their record books for 15 years compared to five years for other sectors.
“The Executive Regulations have made life easier for the businesses and individuals. You can see people appreciating the regulations. It will be an easy and smooth implementation of VAT,” said Sharma.
He added that in the last three days alone, the tax agent details and Executive Regulations means the government will implement VAT from January 1 and businesses have to align themselves to the rules.
“Despite the government giving businesses enough time, many had not started the process. I don’t see 100 per cent smooth transition but even 75 per cent will be considerable because every body didn’t start at the same time,” Sharma added.
Impact on household budgets
Suresh Panwar, chairman of the ICAI Abu Dhabi Chapter, says rent, education and healthcare services costs are the highest in the UAE.
“I believe by keeping these services at zero rate – subject to certain conditions, government tried to put the least burden on the general public. However, due to VAT, consumers are expected to feel the burden of tax on telecom, electricity and water and food bills, which I believe will also lead to effective utilisation of these items particularly electricity and water. Overall, I believe there will be an impact of around one per cent to 1.5 per cent on household budgets,” he added.
According to Panwar, SMEs, which were historically working on cash books without proper accounting, will have to maintain proper accounting records which will help the businesses in monitoring and reviewing their cost structure and do business in a more informed manner.
Thomas Vanhee, founding partner of Aurifer Middle East Tax, noted that any businesses that were still waiting for the publication of the full legislation now no longer have an excuse not to register for VAT purposes.
The Federal Tax Authority (FTA) has communicated relatively extensively on the introduction of VAT, and its message has been consistent with the publication of the current executive regulations.
However, many businesses, including large corporations, still today have not registered for VAT purposes with the FTA.
“The majority of our clients who have applied for group registration, still have not received approval of their application,” Vanhee said. “However, since the VAT rate is fairly low in comparison with other jurisdiction such as Europe, we do not expect VAT to greatly affect consumer behaviour. Therefore we can expect the market to stabilise again shortly after the introduction of VAT.”
Mayank Sawhney, director of MaxGrowth Consulting, states that the long wait of all UAE businesses and residents on getting some clarifications on a number of grey areas of the VAT Decree Law seems to be over to a great extent. However, it is not completely over, as there are still a number of areas that are still grey, on which further clarifications and guidance are expected from the Ministry of Finance and the FTA over the coming days.
Anthony Peter, director of corporate communications and operations division at Panasonic Marketing Middle East and Africa, says “unlike goods that are essential, consumer electronics do not fall in to that category and as such, consumers may take time to adjust to the increase. This may cause a temporary slowdown of sales but as with all changes, consumers will get used to the same”.
source credit: msn.com