With the UAE completing its first year of the implementation of value-added tax (VAT), experts believe that the imposition was smooth, successful and transparent, despite some initial hiccups as it was a first ever-experience for the government.
Nirav Shah, director at Fame Advisory, says the Federal Tax Authority (FTA) has done a very good job.
"The FTA has been active in issuing user and industry guides on positions throughout the year, which were extremely helpful. They have also attempted to issue clarifications on grey areas. There is some backlog but overall it was a smooth first year in terms of implementation of VAT. We look forward to similar cooperation with tax audits and keeping it tax-payer friendly," Shah added.
On January 1, 2018, the UAE levied VAT at 5 per cent - which is one of the lowest in the world - at each step of the supply chain of goods and services in order to broaden the government's revenues sources.
The registration for VAT with the FTA is mandatory for any natural or legal person who carries out business in case their taxable supplies exceed Dh375,000 ($100,000) during the previous 12 months or are expected to exceed that amount in the next 30 days.
FTA director-general Khalid Ali Al Bustani said registration, filing tax returns and paying due taxes on time by taxable persons are fundamental legal responsibilities to ensure that businesses comply with tax legislation.
The FTA introduced various tax periods to file tax returns on a monthly basis for large businesses, and a quarterly basis for others. All business sectors were informed of the dates for their tax periods, adding that all registered businesses in the VAT system must submit their tax returns on a monthly or quarterly basis as determined by the authority, based on the amount of their annual revenues.
Anurag Chaturvedi, managing partner at Chartered House Tax Consultancy, says the transition to a VAT regime was challenging for businesses considering the short implementation period. It was, however, made easier with support from the FTA's guides. Majority of companies have structured their business processes and systems to comply with the new tax regime.
He noted that the FTA has been quite successful in terms of getting maximum companies registered for VAT.
"Even in terms of compliance relating to the return submissions all registrants have complied with the same to avoid attracting any penal provisions. The guides and information provided by the FTA has helped businesses to make sure that they are compliant. The ease of process for return submissions would also contribute to compliance," he said.
Official information is still awaited about revenue from VAT generated for the year but since the government has cited increase in federal budget spending towards infrastructure for the coming year it is safe to say that they have attained the goals set out by them," Chaturvedi added.
Tourist VAT refund
Thomas Vanhee, founding partner at Aurifer Middle East Tax, said the UAE, and more specifically the FTA, faced an unprecedented task as no major or mid-sized country in the world has implemented VAT where there was no prior tax authority.
"Credit needs to be given to the FTA and the Ministry of Finance for successfully implementing it. With the issuance of multiple guides, public and private clarifications, quick reference guides, awareness sessions and clinics, it has also provided as much information as possible to the wider audience. The pick-up and compliance with the system has overall been good," Vanhee said.
From a business perspective, he noted that there remains a number of questions and some initial steps in terms of litigation between businesses have been taken.
"This is not uncommon and happens as well in mature jurisdictions. On the litigation front, it is interesting to note that there is a first VAT court case pending. With respect to the tourist refund scheme, the pick up by retailers has really been impressive and much higher than what we see in other countries. It shows the ease of the system. It will go far in securing the position of the UAE as a shopping destination," he added.
The UAE launched the first phase of the tourist VAT refund scheme on November 18, allowing visitors to claim VAT refund on the purchases made in the UAE from the country's three busiest airports - Dubai, Abu Dhabi and Sharjah - while flying out of the country within 90 days.
From December 16, phase two was rolled out from seven other locations: three airports - Al Ain International Airport, Al Maktoum International Airport and Ras Al Khaimah International Airport; two sea ports - Zayed Port in Abu Dhabi and Port Rashid in Dubai; and four land ports - Al Ghuwaifat Border Post in Abu Dhabi, Hili Border Port and Al Madheef Border Crossing in Al Ain and Dubai's Hatta Border Exit.
By December 10, the total number of retail outlets linked to the refund scheme had reached 6,903 with 3,800 digital transactions on average being processed daily.
The UAE expects to generate Dh12 billion in revenues through VAT in 2018 and Dh20 billion in 2019, helping the government to diversity its revenues away from the petrodollars as decline in crude prices prompted the UAE, and other oil-producing nations, to look at alternatives amidst volatility in prices.
However, the UAE rolled back VAT on investments made in precious metals such as gold, silver and platinum, used in trade in accordance with internationally-accepted standards with a purity of 99 per cent or more.
Imposed as part of the framework agreed upon by the GCC states, certain segments in key sectors such as healthcare, education and transport were exempted under the new tax regime.
Firms should be ready for audits in 2019
Meanwhile, UAE businesses should be ready for tax audits by the FTA in order to check their resources and accuracy of record-keeping.
The FTA has been sending notifications to companies that they will be audited five working days after the date of the e-mail sent to them, for January 1, 2018-to-April 30, 2018 and May 1, 2018-to-July 31, 2018 tax periods.
Anurag Chaturvedi, managing partner at Chartered House Tax Consultancy, said a VAT audit can be a huge upheaval for anyone who is not prepared and maintained tax records in compliance with guidelines issued by the FTA.
"It's obvious that businesses must prove that every expense claimed within the business is legitimate and their appropriate documents are in place. Besides expenses, each revenue is accounted for accurately and due tax is calculated and paid on timely basis," Chaturvedi said.
The FTA has increased its focus on VAT compliance for businesses in recent months and issued guidelines to matters of concerns to clear out the position. Recently, there has also been a request by a few businesses for tax audits covering between one to two tax periods.
By Waheed Abbas
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