As ‘Goods and Services Tax (GST)’ will finally become a reality in UAE by 1 January 2018, it will be good for all UAE businesses and citizens to grasp the basics about this new tax system. This move is generally viewed as a refocusing and reconstruction of the prevailing economy, which is hit by the cave in of the oil price that happened in the past few years. Rebuilding and modernizing the UAE economy is the prime motive behind the introduction of GST. All member states of GCC have given their consent for the same.
In short, UAE consumers will have to pay a VAT of 5% from the start of 2018. GST is bound to create direct or indirect impacts on the daily/monthly budgets of all UAE citizens. ‘VAT (Value-Added Tax)’ is a typical method of merchandise taxation, wherein, the appropriate value gets added during every phase of the supply chain, and the tax rate is derived accordingly. This happens from the procurement of the raw materials to the level where the final goods are transferred to the customer.
The Essence of VAT
Pragmatically, the introduction of VAT means that the tax gets divided between the various players with regard to the product concerned. For instance, let us consider the example of the consumer product bread. The farmer who produces wheat, which is the base ingredient of bread, pays a fixed tax, on the cost of the same. The flour mill owner pays the tax for the manufacture of flour, and baker, who is the final point as far as the process of bread creation is concerned, pays a stipulated tax, for the production of the same.
This, in essence, means that the common consumers will have to shell out extra money for carrying out many of their daily activities. It seems that some of the common and major food items like coffee, tea, fresh fruits, baby milk products, sugar, etc., and health care products, and education will be exempted from this new taxation method. However, luxury food items such as chocolates and candies will fall under the new taxation law.
Companies Will Have to Gear Up for GST
Companies must not take VAT as a mere financial function; it will run across almost all organizational functions. Hence, companies will have to prepare wisely for implementing the VAT properly and professionally, so that they stand at a safe place. Practically, it will be sensible on the part of businesses to make the needed arrangements for tackling the consequences of VAT.
They will have to make adjustments in their basic operations, including the book-keeping and financial management, in implementing newer technological tools, and of course, hire financial professionals who are proficient in the implementation of VAT. A practical advice to all business establishments is to add in a special clause in all of their further business contracts, which clarifies that the onus of VAT can be shifted to the consumers. Nevertheless, the most vital step all companies must take is to recruit sufficient financial experts who are capable of handling the financial responsibilities in tune with the new VAT system.