Tax Audits: Businesses should ensure tax compliance

Businesses should take a note of the increasing tax inspections and audits. Tax audits and inspections are not surprising as taxation regimes are based on the concept of ‘self-assessment’. Businesses are themselves responsible to assess their tax positions and tax liabilities. The penalties act as a deterrent for committing tax frauds and/or non-compliance.

During the first 6 months of 2022, the Federal Tax Authority (FTA) carried out 9,948 inspection visits in local markets across the UAE. It is an increase of 104 per cent as FTA conducted 4,878 inspections during the first 6 months of year 2021.

On the excise tax side, the inspections resulted in the seizure of (a) about 5.5 million pieces of non-compliant tobacco products (not carrying the prescribed "digital tax stamps") and (b) about 1.07 million packages of non-compliant selective goods including soft drinks, energy drinks and sweetened drinks. The excise tax liabilities on such goods could aggregate to Dh130.4 million.

Very recently, a commercial facility in Dubai faced foreclosure due to non-compliance of excise tax laws. FTA found about 5.4 million packets of non-compliant tobacco and tobacco-based products i.e. not carrying digital tax stamps.

Further, 1,213 violations were issued during the inspection visits and 404 notices of non-registration were issued.

Objective and collaboration

FTA has confirmed its keenness for intensified market inspections across all the emirates. The aim is to ensure laws, legislation and tax procedures are duly followed. Tax compliance guarantees the strengthening of the national economy and ensures consumer protection.

FTA’s press statement mentions that FTA is collaborating with various government departments, ministries and authorities to protect consumers from non-compliant products, combat tax evasion, and ensure compliance with tax legislations and procedures.

Tax Guidance and procedures

The tax authorities have issued appropriate guidance and clarifications from time to time to assist the businesses in understanding their tax obligations.

About 29 public clarifications, 25 comprehensive guides, 4 business bulletins and 1 awareness guide has been issued on Value Added Tax (VAT) laws. Similarly, about 7 public clarifications have been issued on the excise tax laws. Further, FTA has conducted various tax clinics across the emirates to address tax queries from the businesses.

Additionally, businesses have other modes to approach FTA to resolve their queries such as private clarification, administrative exception application etc.

Proactive actions by businesses

The general time period for a tax assessment is 5 years from the end of a tax period. The 5 years is counted for each tax period independently. If the first tax period since 01/01/2018 was completed in say, April 2018, the 5-year period would be completed by April 2023. Further, if the non-compliance continued in the subsequent tax periods, the 5 year window would be counted accordingly.

In our ‘Tax Conversation’ on Aug 7, 2022, we discussed the 4Rs principles for a comprehensive tax strategy. Businesses should be (a) Ready to Comply, (b) React for advise, (c) Reveal to optimise and (d) Revolutionise to maximise.

Businesses should be proactive in managing their tax compliances instead of being under fear of a tax audit or inspection.

Pankaj S. Jain is the managing director of AskPankaj Tax Advisors. For feedback and queries, you may write to info@AskPankaj.com. Views expressed are his own and do not reflect the newspaper’s policy.

• Dubai