Value Added Tax (VAT) is one of the most common types of consumption tax in the world and has been implemented by more than 150 countries world-wide. Government revenues from taxation are generally used to pay for public services including public health services, public owned or funded schools, parks and transport infrastructure.
Based on the recent decision to introduce VAT in the GCC region, aiming to reduce its dependence on oil and other hydrocarbons as a source of revenue, numerous questions are arising about how it will influence business operations and what impact it will have on consumers.
Mr Paul Drum, Head of Policy at CPA Australia and an expert in tax law, hosted a workshop at the University of Wollongong in Dubai (UOWD) explaining in detail what the new tax law means and what to expect once VAT is implemented in the UAE on 1 January 2018.
“The UAE will apply a VAT rate of five percent on taxable supplies which is very low in comparison to the average tax rate of 19 per cent globally. However, not everything will be charged VAT as the law makes provision for zero rated and tax exempted goods and services to ensure the impact of VAT on consumers are kept at a minimum”, Mr Drum explained.
Whilst the consumer will be taxed on goods such as electronics, smart phones, cars, jewellery, certain beverages, financial and accounting services, legal services dining out and entertainment, certain services and goods such as nearly 100 food items, basic health services, transport and public education will be exempted from VAT.
Mr Drum explained that the difference between zero rated and exempt tax is that suppliers of zero-rated goods and services are eligible to reclaim their input VAT whereas suppliers of exempt goods are unable to do so. Zero-rated and exempted goods and services, have no direct impact on the consumer.
Businesses with a minimum turnover of AED 375,000 are required to register for VAT whereas companies with a turnover less than the mandatory threshold but exceed the voluntary registration threshold of AED 187,500 have a choice to register. Voluntary registration will be especially beneficial to start-up businesses with no turnover at present. It is essential for VAT registered businesses to keep their business records as proof of tax charged and VAT they have paid to the government.
Mr Drum stated that although the VAT registration process has not yet commenced, there is a shrinking window in which to prepare for it by reviewing and changing financial management processes, implementing new technology and appointing tax advisors if required. Consumers can expect a spike in sales of certain items prior to the official implementation of VAT which in turn could lead to a drop in sales in the same sectors in 2018.
“The combination of the new excise taxes and the GST will have a moderate impact on inflation”, Mr Drum said. “But because of the low GST rate, it is unlikely to be an ‘economic showstopper”, he concluded.
It is anticipated that around 5000 finance and accounting jobs will be created within the GCC region with the introduction of VAT. This is especially good news for current finance and accounting students and graduates as they will have the opportunity to take advantage of the ample employment opportunities available.
UOWD’s Bachelor of Commerce in Accounting is accredited by not only the Ministry of Education – Higher Education Affairs, but also by professional bodies such as ACCA, CIMA and CPA Australia, making them strong competitors in the finance and accounting sector.