UAE VAT AND TEETHING PROBLEMS
INTRODUCTION
VAT’s introduction in the UAE economy was implemented with an aim to take Dh20 billion out of the economy but instead the government released Dh14 billion back with the proposed reforms which effected the people’s spending capacity. The UAE economy as well as the businesses and the consumers have faced many teething problems after its implementation.
PROBLEMS THAT ARE BEING FACED
DIFFICULTY IN TRANSACTIONS
The important decisions ( on what sectors would be zero rated ) that were introduced after the implementation of VAT have made the transition difficult since all those date back to January 1 . Furthermore the glitches with the registration and the VAT return process coupled with short time to the business to prepare for the layed legislation have added to the difficulty.
CONFUSION IN MARKET OVER TAX INVOICES
As a result of confusion in the market over tax invoices , some business have been these invoices as an excuse to push back the suppliers on paying and the people are also finding it hard to seek refunds after filing their VAT.
ISSUES WITH CARRY FORWARDING THE REFUND
Carrying forward the refunds has also been an issue after VAT’s implementation since an information request is triggered from the Federal Tax Authority if the business doesn’t elect to carry forward the refund and asks for it to pay now . Furthermore requesting for a refund is also cumbersome since a letter from the bank outlining the details of the bank account is required to be uploaded. Businesses electing to carry forward their refund since they are not prepared for an audit would have an impact on the cash flow too .
IMPACT ON PUBLIC PSYCHE
The geopolitical situation coupled with high cost of doing business has had an impact on the public psyche since there were decline in the sales in January and February despite of the Dubai Shopping Festival .
INCREASE IN THE COST OF DOING BUSINESS
VAT’s implementation has increased the cost of doing business due to cost of people , compliance fees , spurt in mall rents and promotional fees.
STRUGGLE WITH REFERENCE TO THE CONTRACTS ENTERED INTO DURING 2017 OR EARLIER
VAT’s introduction has landed up the contractors in a dilemma as to whether VAT is to be charged with reference to the contracts that were entered into during 2017 or earlier and whether contract value should be inclusive or not . This is specifically being faced in respect of the services that are provided under the exempt category.
WHAT IS THE NEED OF THE HOUR?
VIGILANCE BY THE BUSINESSES ABOUT THE REGULAR CHANGES IN INTERPRETATION
The businesses are required to be vigilant in reference to the clarifications that are being issued by the FTA since the updates do not specify as to what has changed and the businesses have a duty to read the fine print in order to find out. There is however an expectation that the law would evolve for another 18 months.
CONCLUSION
There are a lot of efforts that have been made by the Federal Tax Authority in order to solve the teething problems that are being faced post VAT implementation. The FTA has published a lot of clarifications in relation to a lot of confusions such as VATP001 which was on the VAT treatment of compensation type payments, VAT P002 which was on the profit margin scheme, VAT P003 which was on the labour accommodation, VAT P004 which was on exchange rate, VAT P005 which was on the entertainment services that are non recoverable. An effort was also made by the FTA in the form of Tax Clinics in order to solve the queries of the SME’s. Furthermore, cabinet decisions were also issued in relation to the VAT refund paid on the services provided at exhibitions and conferences and on the application of VAT on the supply of gold and diamond among the registered members in the states.
