The UAE government had implemented VAT of 5% on services and goods in the year 2018. After this, any business or trade earning a minimum of AED 375,000 per year is liable to register itself with the Federal Tax Authority of UAE. Companies failing to register will be penalised and has to pay hefty charges for not abiding by the underline rules regulated by the UAE government. The gulf countries have always followed 0% tax redemptions but the government has witnessed a need for passive income to implement better developments in the state.
Even though a 5% supplement might not cause an eventual outrage in the consumers but it might cause some adverse effects on the retailers, especially the ones associated with electronic goods. UAE’s market has always been one of the most traded markets that know how to spend and to earn. The lifestyle followed by the inhabitants is always on an elevated scale, therefore, the impact which the 5% increase in prices caused in the end buyers of products is far less than it would have caused in other countries.
The VAT in Saudi Arabia
Both the United Arab Emirates and the Kingdom of Saudi Arabia are the prior countries of the Gulf Cooperation Council to launch VAT charges to its economic policies. Similar to the UAE, Saudi Arabia also charges 5% VAT on standard quality goods and services. Just like UAE, Saudi has also exempted various products from getting levied with taxes. However, one can only get their products at tax-free rates only if they manage to produce correct statements of what the products carry and whether they abide by the rules and authorities listed under the Saudi government.
These trades that charges tax payments are those which are carried within the state. Products that are not consumed or traded within the economy are labelled as zero-rated supplies. Moreover, medical equipment, medicines and various precious metals of investments are also kept zero-rated. One example, where the inhabitants are exempted from payments of taxes includes housing rents such as leasing or renting a residential property.
Tax Compliance in GCC
Even though the United Arab Emirates and Saudi Arabia were the first Gulf countries to propose taxes, their government has levied the taxes under the coordination of other countries associated with the Gulf Cooperation Council (GCC). This is because the GCC countries have signed an economic agreement called “The GCC Customs Union” where each participating country is assigned to support each other in various fields that would cater in the growth of the economy.
The improvisation of an indirect tax by the name of VAT (value-added tax) on various goods in the economy would bring about a passive income to the government which would, in turn, help the government to enhance the infrastructure and other development programmes undertaken in the various parts of the country. Some of the other GCC countries that have followed UAE and KSA by the introduction of VAT are Bahrain, Kuwait, Oman and Qatar.