We all already know that VAT has been implemented in United Arab Emirates. It has been decided to implement VAT in Gulf Cooperation Council (GCC) Countries vide an understanding between them. The GCC works as a Trade and Economic Group. The inter State trade between the GCC Countries is like trading within the States.
Why is VAT being implemented?
The GCC Countries depend on the revenue from the Petroleum Industry for pursuing their economic agenda. The Petroleum industry, mainly crude manufacturing is facing the heat and not generating much income. This has led to the Countries not able to implement welfare programmes for their people. In order to overcome these and provide the best of the facilities to the Education hungry population of the GCC Countries, the GCC has decided to introduce VAT in their economies.
VAT is an indirect tax. VAT shall be levied at every point of sale within the State. It shall be collected from the Buyer of Goods. VAT in GCC is invoice method wherein the seller will provide invoice to the buyer stating the VAT Amount specifically in it. The buyer can then claim the set off of such vat paid while making payment of VAT Collected from sales. The import of Goods and Services in the State shall be charged on Reverse Charge basis i.e. the importer shall pay the VAT on the value of Goods imported.
A standard VAT Rate of 5% has been decided by the GCC Council. No VAT shall be levied on essential items. The model of VAT introduced is similar to European model of VAT.
Important Definitions:
1. Goods
Physical property that can be supplied including real estate, water, and all forms of energy as specified in the Executive Regulation of this Decree-Law.
Here it can be seen that Goods have been specifically defined to include only physical property i.e. tangible goods. Apart from tangible property, some of the items like real estate, water and energy are specifically defined to be goods.
2. Services
Anything that can be supplied other than goods.
This is the most important definition. It covers everything under its ambit other than goods. This means anything which is not goods is services. It is relevant to observe that intangible properties which have been excluded from the definition of goods would get covered within definition of services.
3. Consideration
All that is received or expected to be received for the supply of Goods or Services, whether in money or other acceptable forms of payment.
This definition states a peculiar term ‘ other forms of payment’. This shall include every other form of payment other than money or currency. It shall also include Barter. Recently, many of the Governments have not yet considered Bitcoin or other cryptocurrencies as official currencies. But even payments made by Bitcoins shall be considered as Consideration.
Concept of Taxable Supplies, Zero Rated Supplies and Exempt Supplies
Taxable supplies are the normal supplies on which VAT is levied.
The GCC VAT law comprises provisions for considering some of the supplies made to be zero rated. For example, VAT is to be levied in GCC Countries. Where the supply is made outside GCC Countries i.e. exports, it shall be considered as a Zero Rated Supply. Zero rated supply refers to supplies made at 0% VAT. The input VAT paid on procuring and exporting the goods can be claimed as refund from VAT authorities.
Exempt supplies are the supplies which are totally exempt from VAT. Input VAT paid on procuring such goods cannot be claimed as refund in case of exempt supply. This is the main difference between Zero Rated and Exempt Supplies.
(Author can be reached at parag.gudhka@gcaindia.com)
Ref: BACKGROUND MATERIAL ON UAE – VAT FEDERAL DECREE LAW (NO.8) 2017
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