A new hope: Concession, waiver and refund of penalties and equality in tax

Companies operating in Designated Zones often have refund positions in their VAT returns, and the administrative penalties imposed on such companies were automatically settled against the refund balance

The year 2022 has started on a positive note. The penalty concession scheme has been extended by one year, and further, provisions have been announced for payment of penalties by instalment, waiver of penalties and refund of already collected penalties.

All the announcements are pragmatic and business friendly. Businesses should evaluate the benefits of applying for the benefits under various schemes and undertake the necessary steps within the stipulated time.

Extension of the penalty concession scheme

In year 2021, a penalty concession scheme was introduced. As per the scheme, administrative penalties imposed before 28/06/2021 and unsettled as on 28/06/2021 would be reduced by 70 per cent if the following two amounts were settled by 31/12/2021:

a) All payable tax (whether payable before or after 28/06/21) up to 31/12/2021; and

b) 30 per cent of aforesaid administrative penalties

Vide Cabinet Decision 108 of 2021, an extension has been given for the penalty concession scheme.

As per the new conditions, the 70 per cent concession on the administrative penalties imposed and unsettled as on 28/06/2021 will be available if the following two amounts are paid by 31/12/2022:

a) All payable tax up to 31 December 2022; and

b) 30 per cent of aforesaid administrative penalties

It may be noted that the subject matter of the concession i.e. penalties imposed before 28/06/2021 has not been changed. In other words, any penalty imposed on or after 28/06/2021 is not be eligible for concession.

Waiver of penalties

The controls and cases for waive of penalties has been announced. The Committee may approve the waiver if the following are met:

1. The violation resulting in penalties should not be in connection to a tax evasion crime

2. The request for waived is submitted within stipulated time

3. The reason for waiver is amongst the specified cases such as death, illness, resignation of key employee; insolvency; settlement through another person’s eservices account.

Payment by Instalment

The Committee may approve the settlement of administrative penalties by instalments if:

a) The amount of penalties is not less than Dhs 50,000

b) The penalties are not subject to any dispute before Tax Dispute Resolution Committee or courts and other entities. Penalties subject to reconsideration before FTA are eligible for instalment payment

c) The tax in respect of the tax period should have been paid

Refund of collected penalties - Tax Justice and equality between taxable persons

A scenario has been provided for refund of administrative penalties paid by a person or a category of persons in order to achieve tax justice and equality between the legal positions of taxable persons.

The refund could be provided without requesting proof of a specific justification. FTA will consider the financial implications of the refund and make recommendations to the Committee. The rules for the refund will be determined by the Committee.

The refund could be provided of penalties collected during the five-years preceding the date of reviewing the refund. If the said refund provision continues to exist, the power of review & refund would continue in the future also.

It would be interesting to see the evolution of the concept of tax justice and equality amongst taxable persons. It appears that individual taxpayers do not have an option to apply for the refund.

Designated Zone companies and other exporting companies

It is pertinent to note that the companies operating in Designated Zones often have refund positions in their VAT returns. The administrative penalties imposed on such companies were automatically settled against the refund balance. Once settled, the 70 per cent concession scheme was not available to such companies.

Considering that 70 per cent concession scheme has been extended by one year and equality is being sought amongst tax payers, a clarification could be expected from the tax authorities if such Designated Zone companies would also be eligible for the refund of penalties already collected against their refund balances.

The writer is the managing director of AskPankaj Tax Consultants. For feedback and queries, you may write to info@AskPankaj.com. Views are based on the unofficial translation of Cabinet decision 105 of 2021 as available on the FTA website. Views expressed are his own and do not reflect the newspaper’s policy.