Greater compliance due to new legal aspects such as country-by-country reporting and Base Erosion and Profit Shifting (Beps), increased spending for Expo 2020, and more companies listing for value-added tax (VAT) will help the UAE to increase its revenues through VAT by up to 30 per cent this year, say tax experts.
Jomon K. George, chairman of The Institute of Chartered Accountants of India's South Region, estimated that the UAE's VAT collection is expected to increase by Dh8 billion or 30 per cent in 2019 to reach Dh35 billion as compared to Dh27 billion last year.
"With increased Expo 2020 spending, VAT revenues would easily be Dh35 billion-plus this year. The way Expo is being marketed by Dubai, naturally the spending and consumption will increase which will enhance tax collection in the UAE, notably in Dubai," George said.
Sangeetha Nair, executive member of The Institute of Chartered Accountants of India (ICAI) - Dubai chapter, believes that awareness is spreading and the market is becoming more mature.
"As we move ahead, we will see increase in VAT revenues and even the compliance ratio is growing. By looking at the proactive approach of the government, it is very supportive to the traders. Hence, compliance will improve," she said on the sidelines of a workshop hosted by ICAI's Dubai chapter on VAT.
The Federal Tax Authority's latest figures showed that the number of businesses and tax groups registered for VAT surpassed 307,000, while the number of those that registered for excise tax totalled 724. The user base for the tax system is expanding rapidly, hence the clearing and forwarding companies increased to more than 123 while accredited tax agents increased to 395.
The UAE and Saudi Arabia levied five per cent VAT on goods and services from January 1, 2018 as part of a framework agreed upon by GCC members. The UAE collected Dh27 billion through VAT revenues last year, surpassing its last year's target of Dh12 billion and event 2019 target of Dh20 billion in the first, thanks to high compliance ratio and awareness campaigns by the Federal Tax Authority and ICAI.
Dubai received the largest share of VAT receipts at 42 per cent followed by 30 per cent for federal government, 18 per cent for Abu Dhabi, six per cent for Sharjah and four per cent for other northern emirates.
Rajiv Hira, managing director of RHMC Management Consultants, estimated that the VAT collection will be around Dh30 billion as there are a lot of carry forwards which have come in.
He noted that Expo 2020 is going to result in good numbers, but both input and output tax comes into play for VAT collection. He also noted that compliance will definitely be stronger.
"If you look at the new things coming in such as economic substance, country-by-country reporting and BEPS (base erosion and profit shifting) is part of it, we are adding further elements of legal impact. Especially gold or real estate industries have also got into AML (anti-money laundering) also. If you add up all these elements, compliance is definitely going to be much more than what we have seen last year," Hira said on the sidelines of the conference.
He also noted that the list of designated zones has been increased to 25 following the addition of three new free zones - Al Ghail Industrial Zone, Al Hulaila Industrial Zone and Al Hamra Industrial Zone - in Ras Al Khaimah. In addition, seven charity organisations have been included in the list which can recover input tax, taking the total to 164 charities in the country.
Mahmood Bangara, chairman of ICAI - Dubai chapter, said the UAE has been massively implementing technology at both government or private sector level, which helped compliance level to surpass expectations.
"Small to medium to large organisations showed their readiness to absorb the VAT in 2018 and refined their systems to make it VAT compatible. Seeing the high degree of compliance last year, there won't be many new businesses who have to start paying VAT now on. Law and practice are getting familiar and matured and as result, there won't be significant new inflow into tax net. So the growth in VAT collection will be a composite factor of GDP growth, enhancing volume trade and service activities," he said.
"I personally feel that VAT collection may increase up to 15-20 per cent (Dh31-32.4 billion) in 2019 over 2018. Retail, hospitality, aviation and shipping are tending to grow. To achieve the Expo 2020 goals, more commercial activities will have to take place. Put together, it will contribute about 25 per cent in VAT collections in 2019," he added.
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