The United Arab Emirates (UAE) which was tax free all these years and major shopping destination for people in the Asia region introduced taxation for the first time on January 1, 2018 with the implementation of 5% Value Added Tax (VAT) across sectors. On the one hand it has raised the cost of living for the Non-Resident Indians (NRIs) and also raised the cost of doing business for small and medium businesses.
Tony CA, a leading Chartered Accountant and Managing Partner of SAT Management Consultancy LLC based in Dubai in an interview to Corporate Ethos opines that although the VAT may be good for the economy, it is a pain for employees and businesses as it comes at a time when the economy is in a semi-recessionary phase. Mr Tony initially practiced in Kerala for some time before leaving for Dubai to join a multinational company where he worked for 5 years before starting his independent practice.
#What has changed for an individual residing in UAE as well as businesses after the implementation of VAT from January 1 this year?
The 5% VAT has increased the cost of living for individuals and raised the cost of operations of small and medium businesses. The new tax is applicable on most goods and services except residential rent, school fees and basic hospital services. Groceries, vegetables, vehicles, saloon services and most commercial goods are now taxed which increases the cost to the buyer. Moreoever, excise duty has been implemented for soft drinks, alcohol, cigarettes, energy drinks which ranges from 100-200%. In schools, uniforms, books, stationery and other goods or services will be taxed so are cosmetic treatments and surgeries in hospitals.
#What is the impact of VAT on Indians doing business especially in small and medium sector?
Under the new system, enterprises will have to submit a self-assessment of income and tax paid and there is no verification on the data submitted. But in due course if there is a problem with the assessment the auditors and business promoters may be held liable. Earlier most of the small businesses didn’t have to keep proper accounts and data. Now they have to maintain accounts for the past 5 years and they have been compelled to buy computers, install software and pay for accounting services. For a business that earns a net income of 5000 to 10,000 dirhams hiring a chartered accountant will reduce his net income by 3000 dirhams. Lot of Indians especially from Kerala are involved in small businesses such as beauty parlours, saloons, cafeterias, vegetables and fruits stalls.
#How do you see the introduction of VAT in UAE, is it a positive development?
Definitely it is a positive development for the region as 12 billion dirhams is expected to be raised annually which can be used for the infrastructure and social development. But I doubt whether the timing of the VAT implementation was right- it has come at a time when the economy is a partial recession due to oil price decline. Already lot of Indians are sending their family back which creates more vacancies in schools and retrenchment is rising across industries.
#How has VAT enlarged the opportunities of chartered accountants in the region?
There were already lot of chartered accountants facing the prospects of losing their job during recession and in addition lot of CAs from India are looking for new opportunities created by VAT. So it is a question of who is going to gain from this situation.
#Dubai is a famous shopping destination, will VAT affect the prospects of shopping festivals and trade fairs?
Tourists can claim refund of VAT at the airport, so it won’t affect the prospects of trade fairs and festivals.