FTA to facilitate ‘smooth transition’ to tax era
dubai — The newly decreed UAE Federal Tax Authority will facilitate future taxpayers for a smooth transition to the emerging business ecosystem while providing more clarity and guidelines about tax compliance procedures, financial and taxation experts said.
They said the FTA would enable the necessary infrastructure to be put in place for the future administration of the tax.
President His Highness Shaikh Khalifa bin Zayed Al Nahyan issued on Monday the decree to set up the authority to collect data, information and statistics related to federal taxes.
James Mathew, senior partner and managing director of Crowe Horwath, Dubai, said the setting up of FTA is a welcome move and a signal to all the business owners to check their preparedness to comply with VAT (value added tax) which is to be implemented in the GCC by 2018.
“With around 15 months to go for VAT implementation, the government is moving ahead steadily to put in place an infrastructure for the tax era. FTA will facilitate taxpayers for a smooth transition to a new business ecosystem in terms of any ambiguities about the procedures, dispute resolution, and related compliances,” said Mathews.
“It will ensure regulation and coordination between the federal government and local governments
With around 15 months to go for VAT implementation, the government is moving ahead steadily to put in place an infrastructure for the tax era James Mathew, Senior partner, managing director Crowe Horwath
within the UAE. It is imperative that the business owners fine-tune their operations and processes in terms of IT infrastructure to fall in line with the VAT regime,” he said.
Experts said VAT is not a tax on sales but a tax on consumption and it sticks with the final consumer.
Ian Anderson, Tax Consultant at Pinsent Masons, said the establishment of FTA is a positive move by the federal government and one to be welcomed.
“The introduction of VAT is a complex project and needs to be supported by establishment of a permanent Authority. More importantly, it will enable the necessary infrastructure to be put in place for the future administration of the tax. It is to be hoped that there will be sufficient guidance issued, and that mechanisms will be developed to deal with any disputes between tax payers and the new Authority,” said Anderson.
Pankaj Mundra, Chairman of Institute of Chartered Accountants of India, Dubai Chapter, said VAT would be a paradigm shift in reform in the GCC’s fiscal policy. “We have no doubt that it will lead to higher inflation, though inflation rates are also heavily influenced by interest rates and economic growth.”
“We advise businesses in the UAE (and the GCC) to start planning now and see how the changes could impact their business to ensure a smooth transition. Businesses will have to adapt to the changes by identifying the impact of VAT on their business, assess capability of existing systems, identify VAT implementation strategy and contracts that need a VAT action,” said Mundra.
Mundra also advised businesses to undertake training/awareness programme for VAT implementation. “VAT will have immediate effects on consumer behaviour, giving opportunities for companies to assess their business direction and to plan strategically.”
Attic Munshi, partner at Crowe Horwath, the UAE, said the establishment of the FTA was expected as the tax regime and its fine-tuning cannot happen without a structured database and an authority to monitor the same.
“Around the globe, governments do collect such data; this data analysis will not only provide a pulse of the economy but will also be of great help to the government in understanding the needs of the economy of the country and further improvement of the tax regime. With the introduction of VAT in 2018, it is the right time that the government has set up such an authority and given it powers to act on dispute resolution on tax related matters,” said Munshi.
The UAE expects to generate about Dh10 to Dh12 billion from VAT in the first year of implementation, according to Younis Haji Al Khouri, the UAE finance minister undersecretary. Sectors such as healthcare, education, social services, and 94 different food items would be exempted.
The tax authority will be responsible for setting up and maintaining records on taxpayers and on taxes paid. It will also issue necessary guidelines and clarifications to taxpayers on matters related to federal taxes and related fines.
The authority will coordinate with the federal government, local governments and taxpayers on all matters related to taxes and related fines. It will represent the UAE in regional and international meetings and conferences concerning taxes, in addition to inspecting taxpayers’ records and documents, reviewing tax returns and auditing reports submitted to the authority.
It will issue certificates related to federal taxes and implementing mechanisms for settling disputes between taxpayers and FTA. It will also be able to request information in the possession of a third party that concerns a taxpayer who is being audited by the FTA.
— issacjohn@khaleejtimes.com