Value Added Tax (VAT) is a consumption tax on the use of goods or services, and it is considered as an indirect tax to be paid by the ultimate customer.

Now when it comes to the business front, there exists a receivable and payable VAT. The VAT collected through the sale of goods are to be paid to the government. On the other hand, the VAT paid while purchases are to be received from the government. Globally more than 150 countries have accepted the VAT concept.

The different types of VAT are:
1. Input VAT
2. Output VAT

The UAE, a part of GCC countries, have agreed on the principle regarding implementation of the VAT.

The GCC countries have signed an agreement known as the Unified VAT Agreement (UVAT). An added benefit behind the acceptance of this concept was to dilute the dependency of the entire country on oil and other hydrocarbon products.

This gave birth to VAT Accounting in the UAE and is also considered as another source of revenue. The proposed rate of VAT in the UAE is 5% initiated on 1st January 2018.

There are 3 kinds of VAT rate in the UAE:

1. Standard Rate
Most of the goods and services have been taxed at the standard rate of 5%. These include electronic items, automobiles, fuel, jewellery, food & beverage, apparels, entertainment services, cosmetics, restaurants & hotels, commercial leasing, construction, etc.

2. Zero Rate
For certain categories of goods and services, VAT is charged at zero rate, i.e., such items are taxable but with a zero rate. Items under this bracket include export of goods or services, international transportation of goods and passengers, supply of certain means of transport, supply or import of investment precious metals (of 99% purity or more), residential buildings, buildings used by charities, certain education services, and certain healthcare services.

3. Exempt
VAT is not applicable for goods and services falling under this category. It includes financial services, certain residential buildings, bare land, and local passenger transportation.

Penalty for Not Keeping Proper Records

An individual or business who fails to keep a track of proper records needs to submit a penalty of AED 10,000. If the offense is repeated again, a sum of AED 50,000 needs to be paid.

• As VAT is a consumption tax the revenue generated will be constant.
• Compared to other indirect tax VAT is easy to manage.
• Due to catch-up effect of VAT, it minimizes avoidance.
• Huge amount of revenue is generated on a low tax rate through VAT.
• As the VAT is collected in small instalments so the consumers has minimum burden.
• VAT is a neutral tax so it can be imposed on all types of business.