ASSESSMENT OF VAT AFTER 6 MONTHS OF ITS IMPLEMENTATION

INTRODUCTION

A new era in the history of the UAE economy had begun when VAT was introduced in which the general public was given the responsibility of sharing the burden of budgetary expenditure on January 1,2018.

ADDITIONS THAT HAVE BEEN DONE AFTER ITS INTRODUCTION

LISTING DOWN THE DESIGNATED ZONES

On 9th January,2018 the Federal Tax Authority had listed down the name of the places that were to be treated as designated zones. The provision with reference to these zones already existed in the Cabinet Resolution No 52 of 2017 under Article 51.

EXEMPTING GOLD AND DIAMOND TRADING FROM VAT

In order to recover from the declining sale of gold, the UAE Cabinet adopted a law in order to introduce VAT Reverse Charge Mechanism for the investors in gold and diamond as well as precious metals. The proposed changes mean that VAT would be levied only on the making charges ( value addition) and not on the gold value.

VAT TREATMENT FOR COMPENSATION PAYMENTS

Vide VATP001 the Federal Tax Authority has published its first public clarifications on the Value Added Tax treatment of compensation type payments.This public clarification however states that no VAT would be due on the payment where a payment is not in consideration of a supply. The document further answers the question as to whether a compensation payment clarifies as a consideration of supply and the key factor to determine this is whether the recipient of the payment has provided anything in return for the payment or not. This clarification also describes various scenarios to illustrate the basis of making such a  determination and also indicates as to where the FTA would draw a line as to what constitutes a genuine compensation.

VAT ELIGIBILITY ON PROFIT MARGIN SCHEME

The Federal Tax Authority has issued a VAT Public Clarification VATP002 which specify the details of the goods eligible for applicability of profit margin scheme. This has been issued to help the business so that they can properly identify those goods which can be sold under the profit margin scheme in context of the transitional periods in which the second hand goods were not subject to VAT prior its implementation in UAE. This clarification while having general application and providing assistance on how to apply law also deals with all possible types of transactions and also states as to how should they be addressed.

ANNOUNCEMENT OF SCHEME FOR VAT REFUNDS

The federal tax authority on Saturday has announced a mechanism that is to be implemented in the fourth quarter of this year which would enable the tourists to reclaim taxes through a fully electronic system without any human involvement while leaving the country

IMPACT ON THE CONSUMERS

In order to make the customers feel empowered, The Higher Committee of Consumer Protection is thus ensuring continued coordination between all the state departments concerned with the VAT in order to corroborate the consumer’s confidence in the market stability and also sound application of tax and to prevent any unjustifiable price hikes.

IMPACT ON VARIOUS INDUSTRIES

FOOD AND BEVERAGES

The spending on food and beverages have not been reduced by the UAE residents even after VAT’s implementation. This is because most of the major retailers have absorbed VAT as a part of their marketing strategy in order to woo the customers while some of have passed VAT onto the consumers in those cases where the retailers could not manage VAT.

GOLD INDUSTRY

Since implementation of VAT, the sale of jewellery has been declined and as a result of which Federation of GCC Chambers of Commerce and Industry have called for a review of 5% VAT on jewellery. The gold retailers are calling for either exemption from the VAT or leviability of tax on the making charges in order to reduce the cost of the product.

CONCLUSION

VAT’s implementation has resulted in rising of inflation to 3.3% and the higher oil prices have trickled down to make the goods and services dearer. Furthermore, the transportation prices have arisen by 10% provided that the fuel practices have been deregulated since 2015. This implementation would as a result of higher oil prices would support domestic demand that would put upward pressure on inflation.