VAT still faces some teething problems

dubai - There are still glitches with registration and VAT return process, says executive

The implementation of value-added tax (VAT) in the UAE is a work in progress and still faces teething problems, said Rob Dalla Costa, director of VAT practice at KPMG, during a panel discussion organised by the Indian Business and Professional Council.

"The delayed legislation gave businesses very short time to prepare their IT systems for introduction. Important Cabinet decisions [on what sectors would be zero-rated] were implemented only after VAT was introduced and backdated to January 1. All those decisions made the transition difficult. There are still glitches with registration and VAT return process," observed Dalla Costa.

He said there is still a lot of confusion in the market over tax invoices. "Some businesses are pushing back on paying their suppliers using the tax invoice as an excuse. Those things will take some time to settle down. In terms of VAT filing, the biggest impact has been on people seeking refunds.

"If you don't elect to carry the refund forward and ask for it to be paid now, then it will trigger an information request from the Federal Tax Authority. If you request for a refund, you must upload a letter from your bank outlining the details of your bank account. Some businesses elect to carry their refunds forward since they are not prepared for an FTA audit. That will impact on cashflow," he informed.

Meanwhile, Deepak Babani, executive vice-chairman of Eros Group, said the FTA needs to find a mechanism where VAT will be refunded to tourists and also allow for ease of cash management for businesses. "There is a credit crunch in the market. The government must also allow businesses to file returns over a longer period, say four to five months, so they can manage their cash flow more easily," suggested Babani.

Praising the recently proposed government reforms, he cited how the cost of doing business has been increasing steadily in the UAE from 2014 to 2017. The main contributors are cost of people, compliance fees and rise in mall rents and promotional fees.

Babani called for a rationalisation in the cost of promotions and a commercial rent regulation to address rent escalation. "Most malls have been escalating costs on a year-to-year basis. Some kind of commercial law should limit these rent increases. Most malls also have long-term contracts where cheques are taken in advance. This should be rectified."

The industry veteran also referred to how mall owners, who are themselves in the retail and franchising business, seek crucial information on sales from their tenants. "They can use this information to compete with us. There should be some regulation to control this. We also need flexible labour laws and rationalisation of fees to bring down the cost of doing business. Low-cost housing must be introduced so that every strata of society can live comfortably. That will bring more stability to society," recommended Babani.

Dalla Costa urged businesses to be vigilant about the regular changes in interpretation on the VAT law issued by the FTA.
"The law is going to evolve for another 18 months at least. Clarifications are coming out regularly. When updates are issued, the FTA does not say what has changed and businesses need to read the fine print to find out. There are still lots of teething problems," he reckoned.

However, with the UAE choosing to zero rate a range of services such as medical, health, education, etc., it has muted the inflationary effect.

"The introduction of VAT was supposed to take Dh20 billion out of the economy. But, the government will release Dh14 billion back to businesses with the proposed reforms. Therefore, the actual effect on people's spending capacity seems to have been offset," Dalla Costa added.

The current geopolitical situation in the region and the high cost of doing business has had an impact on the public psyche. "Pre-VAT, there was a big spurt in sales, then they dropped and later hit a plateau. December was a very good month for sales. Subsequent to VAT, despite the Dubai Shopping Festival and a lot of companies trying to absorb VAT, sales were dull in January and February," Babani observed.

He added that the proposed 6-month visas for job seekers would reduce the cost of recruiting people. "The free transit visas available on arrival will also bring in more tourists to the city. The 10-year visas for investors and professionals will help the UAE retain talent," he concluded.

- deepthi@khaleejtimes.com