VAT MECHANISM APPLICABILITY ON GOLD AND DIAMOND BETWEEN REGISTRANTS IN THE STATE

INTRODUCTION

After reviewing the Constitution,Federal Decree Law No (1) of 1972 on the Competencies of the Ministries and Powers of the Ministers and its Amendments, Federal Decree Law No 8 of 2017 on VAT, Cabinet Decision No 52 of 2017 on the Executive Regulation of Federal Decree Law No 8 of 2017 on VAT, the Cabinet on 22nd May, 2018 had issued the Cabinet Decision No 25 of 2018 which was made effective on 1st June, 2018.

APPLICABILITY OF THE DECISION

This decision has however been applicable for gold and diamond merchants who further resell, produce or manufacture gold or diamond products.

RULES THAT ARE TO BE APPLIED IN CASE OF THE SUPPLIER MAKING SUPPLY OF GOODS TO A REGISTERED RECIPIENT AND THE RECIPIENT HAS THE INTENTION TO EITHER RESELL THE GOODS OR USE THEM TO PRODUCE OR MANUFACTURE ANY OF THE GOODS

Article 2(1) of the Decision states that, where the registered recipient declares that :

• The acquisition of goods is for the purpose of resale or to produce or manufacture any of the goods

• The recipient is registered on the date of supply

• The recipient shall calculate tax on the value of the goods supplied to him

In writing, then the supplier would neither be liable to calculate tax in relation to the supply of goods and to include the same in his tax returns

However it would be the recipient of goods who would be liable to calculate tax on the value of goods that are supplied to him and shall also be responsible for all the tax obligations that are applicable in relation to the supply and for the purpose of calculating the due tax in respect of such supplies.

SITUATIONS IN WHICH THE SUPPLIER WOULD BE LIABLE TO CALCULATE TAX IN RELATION TO SUPPLY AND TO INCLUDE IT IN THE TAX RETURNS

• Where at the date of supply, the supplier was aware that the recipient was not a registrant

• Where in accordance with the written declaration and the means that have been approved by the Authority, the supplier has not verified that the recipient is registered at the Authority.

• In case the taxable supply is subject to tax at zero rate in accordance with clause (1) or (8) of Article (45) of the Federal Decree Law No 8 of 2017.  

CASES WHERE THE RECIPIENT AND THE SUPPLIER WOULD BE JOINTLY AND SEVERALLY LIABLE FOR ANY DUE TAX AND RESPECTIVE PENALTIES

As per article 2(3) of the Decision, the recipient and the supplier would be jointly and severally liable for any due tax and respective penalties, where the recipient was not registered for tax purposes at the date of supply and the supplier was aware of it.

CONCLUSION

This has been implemented in order to provide relief to the gold and diamond merchants who have been dealing in high value commodities at export and have been facing significant cash flow impact due to the payment of input VAT on their purchases.