Written by: Vikas Panchal, Business Head at Tally Solutions in the Middle East
Value-Added Tax (VAT) has been the subject of discussions, debates, reviews and opinions in 2017. The anxiety and fear that surrounded this term was not just extraneous, but placed unnecessarily. But with the onset of 2018, life moved on! The UAE introduced a 5 per cent VAT starting January 2018 with a standard return filing period of 3 months, applicable to most of the businesses while few businesses will be asked to file on a monthly basis.
The first week of VAT saw a slump for several businesses, but the following weeks saw the businesses come back to normal. Introduction of VAT certainly created a stir in the country, but in its first month of implementation, businesses have realised that VAT is a clear and transparent policy posed to the final customer. It does take a bit of additional record keeping, but the final results are stupendous!
An estimated 350,000 companies are subject to VAT in the UAE, and penalties for filing incorrect returns, start at AED 3,000 as well as a AED 10,000 fine for a first-time failure to keep the required tax-related records. Despite the concerns and seemingly endless number of questions surrounding it, VAT was introduced by the Federal Tax Authority (FTA) in a relatively smooth rollout last month. While businesses had mixed views and opinions about VAT, the shift to the new era has been positive.
Businesses have not only changed their core operations, but are now better managing their financial records, technology and human resource mix. The day-to-day activities have become more organised and many have found stable jobs with the introduction of new divisions and departments.
Studies indicate that VAT will help to support the UAE’s long-term sustainable development process, increase individual prosperity and promote the community stability. It has been noted that businesses, whether it be jewellery or a grocery shop have witnessed a steady stream of income even after the imposition of VAT.
The businesses were not only least affected by the imposition of value added tax (VAT) because it is one of the lowest rates in the world, but also because the government will be pumping back tax funds into the development projects which, in turn, will boost a number of industries in the country.
Since the establishment of the UAE, the government has provided unlimited support to all business sectors, thus offering significant opportunities to foundations and companies to grow and expand both inside and outside the UAE, and introduction of VAT certainly has no negative effects.
What was anticipated to be a challenge for the growth of the country, has turned out to be positive. UAE businesses have realised that VAT has not only brought transparency to company accounts and financial dealings, but has also helped them make smart adjustments to their monthly budgets to absorb the new tax.