| 10 January, 2018

Businesses abusing VAT to hike prices could face closure, says UAE official

Abu Dhabi government official says fines have already been imposed on some businesses that have increased prices 'without justification'

Image used for illustrative purpose.  Value-added tax was introduced in Saudi Arabia and the United Arab Emirates from January 1, 2018.

Image used for illustrative purpose. Value-added tax was introduced in Saudi Arabia and the United Arab Emirates from January 1, 2018.

The Abu Dhabi government has warned businesses and shops that take advantage of the introduction of value-added tax (VAT) to manipulate prices that they face hefty penalties, including the potential threat of closure, a senior official has said.

Following the introduction of VAT into the United Arab Emirates on January 1, residents have voiced concerns that prices in some shops and retail outlets have increased by more than the set five percent rate for VAT. But Khaleefa Salem Al Mansoori, the Undersecretary of the Department of Economic Development-Abu Dhabi, told Zawya that UAE authorities will take the necessary measures to protect consumers against such illegal practices.

“We have already started implementing the fines for VAT violators,” Al Mansoori said on the sidelines of the UAE Economic Outlook Forum held in Abu Dhabi on Tuesday.

“We issued (a) few fines in the first week in Abu Dhabi for various reasons, either collecting tax when they are not registered, or increasing the prices without justification. We received over 300 complaints and inquiries, but they were mostly requests for clarifications,” he said.

“We are continuing the inspections as usual. And if there are cases that require further examination, we will validate, verify, and check with the businesses themselves,” he added.

Al Mansoori told reporters that some non-government entities are contributing to lower the impact of VAT on residents through special offers, with some car dealing agencies, for instance, announcing that they will bear the cost of VAT instead of collecting it from consumers.

“But anyone who violates the rules by altering the prices without justification or charging an incorrect amount of VAT will be penalised with fines and measures that could reach up to closing the business,” he said.

“Even if a restaurant, for instance, wants to change the prices on its menu, it cannot do so without going through a certain set of procedures with the relevant authorities,” he added.

While VAT in the UAE is set at 5 percent on many goods and services, the overall impact of the introduction of VAT on inflation is estimated at around 1.4 percent, given that some sectors are either exempt from the tax or zero-rated, said Khalid Ali Al Bustani, the director-general of the Federal Tax Authority (FTA) at the forum. He added, though, that this rate would vary based on individual spending habits.

Shiraz Khan, a senior tax advisor at law firm Tamimi & Co, also expects the impact of VAT on UAE residents to be minimal, stating that the strategy has been carefully thought-out in terms of social and economic implications.

“If you look at some of the biggest costs for people, for example rent, it will be zero-rated. If you look at education and essential healthcare, they are zero-rated as well. So some of the very high costs for most people and families in the UAE are not subject to VAT,” he said during a panel session at the forum.

“VAT exists in more than 160 countries across the world, and the UAE also has the lowest rate at 5 percent. If you look at Europe, they have (a) 20 percent rate, while in Africa it is 15 percent,” Khan added.

However, Ahmad Hasan bin Al Shaikh, the managing director at Hassan Bin Al Shaikh Group of Industries, expressed fears at the same panel that the cash flows of businesses in the private sector would be negatively impacted by the introduction of VAT and that residents’ purchasing power would decline.

Abdulrahman Al Saleh, the director-general of the Department Of Finance, Government of Dubai, argued that the inflationary impact of VAT will appear only in the first year of its implementation.

On Sunday, the FTA announced that a cooperation agreement had been put in place with the government economic departments across each emirate to monitor VAT implementation in each market and to allow local inspectors to verify the authenticity of Tax Registration Numbers that companies print on tax invoices.

For Zawya’s Special Coverage on the introduction of VAT to the GCC, click here.

Our Standards: The Thomson Reuters Trust Principles

Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.

© ZAWYA 2018