The Value Added Tax is in force from today (January 1, 2018) . It is consider as the entering age of VAT in UAE . VAT is applied at a uniform rate of 5% on taxable supplies, a number of goods and services are either zero rated or in exempt category in the UAE, reducing the overall inflationary impact. VAT is one of the most common types of consumption tax that has been implemented in more than 150 countries in the world .
VAT is charged at the each step of the ‘supply chain’. Final consumers generally bear the VAT cost while businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government.
Taxation is a globally accepted practice of augmenting and diversifying government revenues. Persistent low oil prices over the past three years have brought considerable economic pressure on the GCC countries. This had led to an urgent need to diversify revenue streams.
The introduction of a new tax in a region that is used to subsidies and absence of government levies, comes with apprehensions on the mechanics of implementation, impact on the economic growth and inflationary pressures.
As for business that are integrating VAT into their invoicing, accounting and auditing systems, it is likely to come with some amount of initial hiccups until people get used to the new system.