Living in the new VAT environment

VAT was effectively implemented on 1st January, 2018 by the United Arab Emirates Government.  While consumers had apprehension on the impact of VAT on their budgets, visible in the way the bills were scrutinized in 2018 to assess the extra amounts paid, in general, the impact on budgets have been significantly minimal.

The key reason for that is the major costs for households in this part of the world are housing and education in that order.  These have been kept out of the purview of the VAT law.

Coming to businesses, there were a plethora of misconceptions on how to proceed with VAT, the Government was nice enough to provide additional time for registration and keep the penalties in abeyance till 30th April, 2018 for non-registration.  But businesses as in any part of the world also looked to take undue advantage and the authorities were quick to take action.  News articles did publish cases of businesses being closed by authorities for over-charging in the name of VAT.

Post the first quarter, those businesses which genuinely wanted to be compliant to the law of the land, find that VAT has improved their processes and provides them with a better perspective of their business.  While generally, businesses are expected to focus on their bottomline, in a tax-free environment, the focus is not on the details but the bigger picture.  Businesses tend to focus more on collections (cash coming into the business) than the actual sales, sales is a process to follow and generates business in an automated manner, it is the realisation of sales proceeds which requires non-standard actions.

With the introduction of VAT and the mandatory need to retain records of all business transactions and maintain an account of the same.  The main challenge for businesses was to get into the habit of asking for invoices, ensuring the contents are in order and maintaining proper accounts for the same.  Having acquired the habit of record collection and maintenance, the accounting part of it was a natural outcome.  Post the first quarter, where many of the businesses had to submit their tax returns, they actually evaluate the net tax liability and start looking at their books of account in a more detailed manner for in many cases the first time.  This is when realisation dawns on areas of cost where rationalisation is possible.

Further, till the roll-out as is common to this part of the world, businesses were in a wait and watch mode, now that VAT has been rolled out, businesses have accepted the same and focus has shifted to manage the same in a compliant manner.

Good for the businesses and Good for the economy.

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