India Economy

What India can learn from UAE’s VAT implementation

Pritam Mahure | Updated on May 06, 2018 Published on May 06, 2018

A single-rate system and fewer exemptions have worked well for the Gulf nation

It has been been around four months since the successful introduction of Value Added Tax (VAT) in the UAE and Saudi Arabia.

Till December 31, 2017, the UAE had neither direct nor indirect taxes. Thus, for the country — or rather for the Gulf region — introduction of an indirect tax was one of the biggest socio-economic changes. But has VAT in the UAE fared well? Let’s see.

Single rate

What has worked well for the UAE is that it brought in VAT with a single rate of 5 per cent. Even the exemptions are restricted to just four items (one of them is residential leasing), ensuring fewer complications in the VAT law.

Even though the Emirate-wise supply details are yet to be disclosed in the VAT returns, there is no need to bifurcate transactions into intra- and inter-State as all taxable supplies are liable for the 5 per cent VAT.

Further, the reasonable rate of VAT has ensured remarkably higher compliances.

RCM is only a disclosure

In the UAE, tax liable under Reverse Charge Mechanism (RCM) is not required to be paid in cash, if credit is available.

Thus, effectively, RCM is only a disclosure for VAT returns purposes. This has also simplified the VAT compliances to some extent.

One-page return

Businesses have to file only a single-page VAT returns form. This may sound like a dream to Indian GST payers.

The UAE has stayed away from the concept of matching of invoices — invoice-level details are not required to be submitted at the time of filing VAT returns.

As per the latest statistics, more than 2.81 lakh taxpayers have registered for VAT in the UAE. Given this, the UAE’s Federal Tax Authority (FTA) staggered the VAT returns period for taxpayers. For example, the system allotted quarterly filing for a few, monthly for some, thrice a year for others.

This step has ensured there’s no overload on the returns-filing portal, resulting in more than 98.8 per cent taxpayers filing their first VAT returns, one of the highest tax-compliance rates in the world.

Inclusive prices

For business-to-consumer (B2C) transactions, the UAE VAT law mandates that the displayed prices should be inclusive of VAT.

This provision has ensured that the customer precisely knows how much she is paying for.

Though a few instances were noted, wherein shopkeepers were found fleecing customers, thanks to social-media savvy consumers, those shopkeepers were penalised by the FTA for their misadventures.

Substantive initiatives

During the transition as well as post-transition, the FTA has regularly addressed seminars and thrown light on key issues.

This has also helped put many doubts on VAT applicability to rest.


But, it cannot be said that there were no challenges in the initial phases of the VAT implementation in the UAE.

The country witnessed and continues to witness a few challenges and confusions on free-trade zones, imports, supplies to other Gulf Cooperation Council (GCC) countries, determining place of supply, etc.

Common market

Businesses in GCC are facing challenges as Saudi Arabia and the UAE are yet to recognise each other as VAT-implementing States.

Additionally, the other four signatories to the GCC VAT framework — Oman, Bahrain, Kuwait and Qatar — are yet to provide a clear roadmap for VAT introduction.

The way forward

It is pertinent to note that the successful introduction of VAT in the UAE and Saudi Arabia will be considered a positive development by the other four nations and they are likely to introduce VAT in 2019 or onward.

Learnings for GST

In the past nine months since its introduction, GST has witnessed numerous changes — rates, rules (amended 19 times), notifications (more than 300), exemptions, returns, date of returns, etc.

With so many changes, forget taxpayers, even tax consultants have not been able to keep track of the alterations.

Additionally, a non-responsive GST Network portal and technical glitches have deterred GST taxpayers.

Moreover, court cases, writ petitions and more recently Advance Rulings, to some extent, have added to the complexity of the GST regime.

Further, more changes are likely to be introduced with RCM, TDS, GSTR-2, GST audit and simplification of GST returns under the Central government’s consideration.

India can consider studying the VAT system in the UAE and Saudi Arabia to ensure how the best VAT methodologies/systems can be replicated here.

The writer is a Chartered Accountant and an author of five books on VAT and GST.

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Published on May 06, 2018
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