Value Added Tax (VAT) is a common indirect tax that is levied by many countries. It is a consumption tax. VAT is levied indirectly on the final consumer for consuming the goods or services. It is meant as target control and it increases in percentage depending on the stage of the goods/production. In the UAE, the VAT is set at 5%. The VAT was introduced in the UAE in 2018 as per the agreement between the Gulf Cooperation Council (GCC) states.
Importance of VAT in the UAE
VAT is a tax that is collected in stages. At every stage, the consumer will pay the required tax. In this way, every stage of the business comes under the purview and it reduces the operation of the black market and unregulated business opportunities. Additionally, VAT is neutral and can be collected to most businesses. The VAT tax system promotes a tax compliant business scene.
By adding the VAT system to the UAE business regulations, the government tries to bring an effective solution to reduce the dependency of oil and hydrocarbon in the region. A huge amount of revenue is generated through VAT implementation in the UAE. The increase in revenue is then used to strengthen the public facilities. Additionally, the VAT positively affects the GDP of the country.
The advantage of the VAT system is that since every small process becomes accountable, The businesses need to carefully follow the rules. Otherwise, there might be serious consequences in regards to the businesses.
Again, not all businesses are levied VAT. There are some zero-rate businesses and some others that are exempt from paying VAT. VAT is also difficult to calculate due to its complex nature. But overall, it is a driving factor for better and dynamic economics in the UAE and is important for the overall development of the emirates.
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