5% VAT on ATM withdrawals from other banks? Read this
VAT will only be applicable on the Dh2 transaction fee
UAE customers will not be charged five per cent VAT on amount withdrawn from ATMs of banks other than their own bank - but only on the Dh2 fee charged by the banks, according to tax experts.
For example, a customer has an account with Bank X and he withdraws Dh5,000 cash from Bank Y's ATM, he will not be charged on the withdrawal amount of Dh5,000.
"When you withdraw from your account, there is no transaction, so VAT does not apply in such case," says Nirav Shah, director, Fame Advisory.
The UAE will implement five per cent VAT on certain goods and services from January, 2018, as part of the GCC-wide agreement. Saudi Arabia is the only other Gulf country to join UAE in implementing VAT.
However, 5 per cent VAT will be levied on the Dh2 fee charged by banks when withdrawing from ATMs of other banks - which translates to around a nominal 10 fils per transaction.
"The VAT will be payable only on the fee charged by the banks which is a nominal amount of Dh2 per transaction in general. So after applying five per cent VAT, it will become Dh2.10 from January 1, 2018 onwards. In essence, it does not hit customers' pockets because even if you do 50 such transactions in a month, your total cost is going to rise maximum by Dh5," says Mayank Sawhney, director, MaxGrowth Consulting.
He noted that banks will have to absorb most of the VAT charged on them by their vendors and suppliers because VAT on majority of their output is exempt, so they cannot recover input VAT they pay to their vendors for various goods and services procured by them.
However, banks may increase their transaction fee for ATM withdrawals from other banks' ATMs from Dh2, currently, to Dh3 or Dh5 with effect from January 1, 2018, Sawhney added.
According to Nirav Shah, banks will be subject to include VAT on all their fees which will be displayed for the customer, for which hey need to do compliance at their end.
These fees will increase to account for this new administrative burden that banks will face.
"If not immediately, banks may hike their fees over the period," Sha added.
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