UAEs decision to reduce tax penalties a big relief for private sector

Dubai – The recent decision by the UAE Cabinet to reduce tax penalties will encourage companies and individuals to make voluntary disclosures if they made a mistake in their tax re-turns and it will also provide them big relief during the pan-demic, say tax experts.

Mayank Sawhney, managing director at MaxGrowth Consult-ing, said the reduction in late payment penalties for VAT or Excise Tax from six per cent in the first month and one per cent per day to two per cent for the first month and four per cent per month after that, will offer a big relief to the busi-nesses facing cash crunch due to tough market conditions and they are not able to settle their tax liabilities on time.

He pointed out that the reduced rates of penalties now are in line with the late payment tax penalties prevalent in other tax jurisdictions across the globe.

Nimish Goel, Partner at WTS Dhruva Consultants, said the UAE has announced three key changes in its latest measures to provide relief to private sector. Firstly, it announced reduc-tion in late payment penalty from one per cent per day to four per cent per month, secondly, no late payment penalty is levied if VAT is paid within 20 days of submission of voluntary disclosure and thirdly reduction in outstanding past penalties by 70 per cent.

“The timing of this decision could not have been better than in the holy month of Ramadan. We believe that the an-nouncement will encourage taxpayers to reassess their past VAT returns, rectify the errors, and come out clean in the eyes of the law. In such cases, taxpayers will be imposed with nominal fixed penalty and variable penalty ranging from five per cent to 40 per cent, depending on the time taken to recti-fy the error,” added Goel.

He said the government has also reduced fixed penalties by up to 50 per cent for other tax violations which include late registration, late de-registration, failure to issue compliant tax invoice/tax credit note.