It has been almost a year since the implementation of the Excise Tax, and it has been more than five months since the value-added tax (VAT) was officially applied across the country.
In any case, this is a review of the first two taxes that have been introduced in the United Arab Emirates (UAE) in the past year. This time last year, there were only speculations on how VAT was going to play about in the country and Federal Decree-Law Number 7 of 2017 was issued already.
With the tax system, everything has been going smoothly than it was a few months before. The businesses seemingly handle their responsibilities and duties really well.
Concise Form of the VAT
VAT is a type of an indirect tax. When this is applied, it increases the original cost of a product as it goes through different supply chains.
The cost that will be added will be based on the VAT rate that is set by the government. In the case of the UAE, it is 5% only; one of the lowest in the world.
Federal Decree-Law Number 8 of 2017 was issued last August 2017, answering most of the questions of the business owners with regard to the VAT. Businesses started preparing then for the registration and organization of their companies to ensure that they can handle the tax system as they should.
Two Forms of the VAT
Zero-rated VAT is applied on goods that are exported to a Gulf Cooperation Council (GCC) country which is not implementing a tax system just yet.
The retail sale is not taxed by the government in a zero-rated VAT. Credits for the VAT paid on inputs are allowed by the government. Goods that are essential to residents, like food, prescription drugs, and utilities are subject to zero-rated. This helps low-income households to survive the tax era.
Goods that are under exempt VAT are not taxed by the government. No credits for VAT paid on inputs are permitted to be claimed.
Since this can be the cause of price hikes, exempt VAT is only used for certain goods or services wherein the government finds it difficult to define VAT, like insurance and financial services.
Excise Tax and Its Meaning
Excise Tax is also an indirect tax that is commonly known as “sin tax” in some countries. It is applied on specific goods, like tobacco and energy drinks.
Law on Excise Tax in UAE
Federal Decree-Law Number 7 of 2017 was issued last June 2017, introducing the whole country to the first idea of the tax system. It has information that residents, especially businesses, in the country have been waiting for since the government has announced the impending introduction of the tax system in the country.
Its implementation happened on the 1st of October 2017. The affected goods were tobacco, energy drinks, and carbonated drinks. The latter’s price is now 50% higher than before and the first two items are 100% higher as well.