Starting to apply “VAT tax”

“It is clear that there is a quantum leap in the public financial management of the country,” said Reda Mosallam, Managing Partner of Truth Economic Consultancy. “Value added tax, which starts today, is the beginning of integrated tax legislation pointing out that VAT is considered the simplest tax among all types of taxes.

“The state is going to adopt a new financial system,” he said. But there are some challenges in these early stages of applying the state tax. On the part of consumers, there is a challenge because they are not used to this kind of new fiscal policy, which includes a tax system. Taxable companies, especially small and micro, will face a challenge. they need accounting systems, programs and management that comply with the requirements of the system and the requirement to adhere to it.

He added: The real challenge is the ability of small companies to comply with the requirements and instructions of the Federal Tax Authority, in order to supply the tax dues to the Commission.
According to his estimates, a significant proportion of the taxable companies are not yet ready to start the application, and he said that many small and micro companies are not ready until this moment.

The other challenge is that the cost of tax collection in this sector is more than the same amount thousands times, and this threatens the existence of this very important sector and its ability to continue to provide services to the community, which is more important than the financial value of the business.

Mosallam pointed out that some small businesses such as grocery stores or retail stores for some goods and services or libraries or small offices that provide some services, which fall within the limits of compulsory registration, ie, the annual turnover of it about 375 thousand dirham’s or more.

He pointed out that any of these small works referred to if the sales volume exceeds one thousand dirham’s per day, will be among the companies required to register, pointing out that the value-added tax on a business value of 375 thousand dirham’s is about 19 thousand dirham’s per year, but the cost the procedures that businesses must adhere to are estimated to be twice that amount, including the obligation to maintain books and legal accounting, forcing them to employ an accountant whose monthly salary is not expected to be less than 4 to 5 thousand dirham’s, even if he is not fully employed, in addition to a tax accounting program with a monthly cost Certain, they also need to tax representative who can calculate the tax and recognition of the value of the tax that must be supplied to the Commission, the tax value to be recovered, and other expenses that could be worth more than 70 to 80 thousand dirham’s annually.

“The cost of collecting one dirham of value added tax (VAT) for small and micro businesses will be around AED 4, a real challenge for this sector,” he said.

As for the consumer, Mosallam explained that the consumer will adapt quickly to this system, and although its impact is limited, he expected consumers to start adjusting spending and consumption levels, which commensurate with their income levels.

He predicted that the imposition of the tax system will lead to a radical change in the culture of consumption in the country.

On the other hand, it should be noted that not all goods and services will be taxed, as many goods and services are subject to a tax of zero or are exempt.

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