The UAE started implementing its tax system more than two years ago, amid fears of negative impacts in the economy and business movement, especially in light of a global economy that is experiencing a contraction in demand and a decline in growth rates.

Although the UAE economy is capitalist, adopts open market policies, and its constitution stipulates that public revenues consist of taxes, fees, and revenues, but over the past five decades it has been like its counterparts in other oil-exporting countries, focusing on its revenue on government fees and oil sources, and dependence is less on it On consumption taxes as stable sources of tax revenue.

The application of taxes was studied within the framework of a new strategic vision for the state's financial management, aimed at reducing dependence on oil as a main source of revenue, and providing sustainable revenues that allow the state to maintain its economic position and the quality of the business environment and invest in it.

August 2017 saw the issuance of the tax laws, the first, Decree Law No. 7 of 2017 regarding selective tax, and the second decree Law No. 8 of 2017 regarding value-added tax, followed by application in the context of commitment to what was agreed between the GCC states Gulf Cooperation. In the last quarter of 2017, the selective tax, which aims to reduce the consumption of goods that are harmful to human health or the environment, was officially launched by imposing a 50% tax on soft drinks and 100% on tobacco and energy drinks. It was followed by the imposition of value-added tax, starting from January 1, 2018, at 5% on import and supply of goods or services.

After five months of implementation, about 300,000 subject to selective and value-added tax have made the decision to register and implement the procedures themselves, with very good commitment ratios to submit declarations and pay the due taxes, which reflects the smoothness of the application, despite the challenges that were expected, according to What the Federal Tax Authority announced at that time, while the most recent data issued by the authority indicate that the number of registered in the value-added tax system has exceeded 300,000 registered from businesses and tax groups and their members, while the number of registered in the selective tax system has reached 724 registered.

The economic environment

In detail, the Director General of the Federal Tax Authority, Khaled Ali Al-Bustani, said: “The stage that preceded the beginning of the implementation of the tax system in the country witnessed intense efforts to lay the foundations of an integrated legislative environment to ensure the implementation of a tax system that is the best in the world, so the Ministry of Finance established as an authority authorized to issue legislation and policies for preparing Legal frameworks for implementing VAT and selective tax ».

He added, "The Federal Tax Authority has put in place the appropriate mechanisms to implement these legislations that clearly define all mutual obligations between the Authority and taxpayers, which contributed to providing an ideal environment based on the highest standards of governance and transparency."

Al-Bustani continued: “The Authority was keen to implement a fully electronic tax system, with the aim of encouraging those subject to tax on voluntary self-compliance, with easy and fast procedures, designed according to the highest standards and the latest technologies that depend on innovation and creativity, which facilitated registration procedures, submission of declarations, and payment of taxes due over the course of The watch, and from anywhere via the online services available on the authority’s website, which provides a variety of flexible payment mechanisms to help business sectors comply with the deadlines for tax periods ».

He pointed out that «and within the plans that were developed to prepare the economic environment for the implementation of the tax system in the Emirates, effective steps were taken to raise the level of tax awareness among business and consumer sectors, through the organization of a series of seminars and introductory workshops before the start of implementation, and are still ongoing for all sectors in all The UAE, in coordination with the authority and the federal and local authorities concerned with the application of the tax, which led to a significant and continuous increase in the level of awareness among the various groups concerned. ”

Study experiments

And on the experiences that were used to implement a tax system that is comprehensive and balanced, taking into account the specificity of the Emirati economic experience, Al-Bustani explained that “despite the modernity and specificity of the experience of the Emirates and the countries of the Gulf Cooperation Council in general in the application of tax systems, we have witnessed during the past period a remarkable and growing rise In the rates of commitment and positive interaction on the part of the business sectors that have shown great response, we have noticed a noticeable satisfaction with the Authority’s policies among the business sectors and society in general, and we are monitoring a gradual and continuous improvement in the levels of cooperation, to succeed The Authority’s role and contribution to the successful implementation of the tax system. ”

He continued: «This development was achieved as a result of applying an advanced system that was reached after extensive studies of the experiences of many countries in the developed world, which have a long history in applying tax systems, and these studies indicated that it is expected to face some challenges with the beginning of the application, so the authority made intensive efforts In coordination with all concerned parties to confront and overcome these challenges, by intensifying awareness-raising plans, simplifying procedures, and providing an encouraging environment for smooth and unimpeded implementation. ”

Business sectors

In response to a question about the application of the two types of tax collection systems, the extent of responsiveness of the business sectors to them, and the improvements that have been made over more than two years, Bustani added: “The business sector’s response rates to tax laws and procedures are witnessing a steady increase, with good commitment ratios being registered by taxpayers. This is due to the smoothness and flexibility of the procedures and mechanisms applied by the authority, which are characterized by simplicity and clarity, through fully electronic systems, without paper transactions, which are the most recent of its kind globally, in light of an advanced legislative environment that was provided in accordance with the best standards used in this Gal ».

He pointed out that one of the most important factors that contributed to the success of voluntary tax compliance was the ease of the steps provided by the authority for registration, submission of declarations and payment of taxes due through online services available around the clock, through the authority's official website: www.tax.gov.ae, which was done Designed according to international best practices, which provides a variety of flexible payment mechanisms, in addition to providing sufficient information and guidance to enhance tax awareness. The Authority’s Director General said: “The last stage witnessed the implementation of several projects to develop the technological structure of tax administration and collection systems, and multiple tax refund mechanisms were launched for legally qualified groups to recover value-added tax, including the electronic tax refund system for tourists, which had high satisfaction rates, and praise Of the tourists who use it, it is characterized by the speedy completion of requests for recovery, and the ease and clarity of procedures. He continued: «The tax recovery mechanism for the construction of new housing has also been launched by citizens of the country, in implementation of the vision of rational leadership, aimed at developing a modern housing system for citizens, and providing the best levels of life and good living for them, as this mechanism works with high efficiency, and witnesses development and modernization processes ongoing".

Al-Bustani said: “As of last April, the authority also started the application of (the value-added tax return mechanism for visiting foreign business), which provides for the return of the tax paid on any import or import made by any person who is not resident in the country or one of the applicable countries, who practices business And it is not subject to tax, for the countries that receive value-added tax for Emirati business visiting them, where the principle of reciprocity is applied to refund the tax for business visiting the UAE from those countries ».

He added: «At the same time, indicators showed that the application of selective tax has achieved remarkable success, whether in terms of electronic application mechanisms that were characterized by simplicity and clarity, or in terms of the level of business sectors response to application with very good commitment rates, in addition to the emergence of many concrete positive effects that Shows the start of achieving the main goals of applying the tax. ”

Ongoing development

Al Bustani clarified that, as part of the continuous development process, the implementation of the system of “marking distinctive signs on tobacco and its products” started from the beginning of 2019, and the circulation of cigarette packs not defined with digital tax stamps was banned, and as of the first of last November, the second phase of the system was implemented. To include all kinds of hookah tobacco known as Muasal, and tobacco rolls intended for use with electric heating, and as of the first of next March, it will be prohibited to import these goods to the country without the presence of "digital tax stamps" on them, and from the beginning of next June it will be banned from importing, transferring, or storing Ha, or possession, or traded without «tax stamps digital» in local markets.

Tax rates

On the other hand, starting from the beginning of this December, the Federal Tax Authority began the application of the distinguished Cabinet Decision No. (52) for the year 2019 regarding “selective goods, tax rates imposed on them, and how to calculate the selective price”, according to which the range of goods that apply It has a selective tax to include sweetened drinks, electronic smoking devices and tools, and the liquids used in them, in addition to tobacco and its products, energy drinks, and soft drinks that have started applying the selective tax as of the beginning of October 2017. Al-Bustani said: “The Authority made intensive efforts to Registration was available before an appropriate period of the decision’s entry into force, so it launched a new, updated electronic system for registration for selective tax, characterized by the accuracy of procedures for registering selective goods and their details with clear criteria and requirements, and updates were also made to the forms of declarations and periodic tax returns for selective tax ».

The ends of the system

And on the parties to the tax system in the UAE, and how the authority organizes the work system at the level of business, tax agents and supervisory authorities, Bustani said: «The base of customers in the tax system is witnessing a steady expansion, in light of the continuous rise in the numbers of shipping and clearing companies, and the approved tax agents, as well as the increase in The numbers of providers of tax accounting systems, while the Authority is keen to document the formation of its strategic partnerships with all relevant federal and local government agencies, as well as the private sector, such as suppliers of tax-refund systems for tourists and distinctive signs on tobacco, That these partnerships a key role in the successful application of the tax system, which was highlighted by the achievement of important goals of raising tax awareness among businesses and consumers, and to protect the rights of consumers ».

Procedures review

And on how to review the procedures in place to collect taxes and monitor compliance, and ensure that the state’s competitiveness is not affected by taxation, Al-Bustani added: “The Authority is conducting continuous development of its oversight tools, the most prominent of which is the organization of joint inspection campaigns in coordination with the Ministry of Economy, economic departments and municipalities, to alert businesses that violate their correction And achieve full compliance, and there is close cooperation with the Federal Customs Authority and local customs departments, especially with regard to the successful connection of their systems with electronic systems of the Federal Tax Authority, which has actively contributed to the Tbaiq smooth tax system and to maintain the flow of foreign trade of the state movement, and the absence of any impediments to the movement of goods to and from the UAE ». He continued: «There is also great coordination with these entities to apply the distinctive mark system for selective goods that was applied for the first time in the region, and contributed to developing inspection and control procedures in customs outlets and markets, and increasing their accuracy and effectiveness to prevent the sale of contraband and not meeting the tax due on them, as "Digital tax stamps" are registered in the authority's database, and are installed on tobacco product packages. Each stamp includes information electronically registered, which can be read by a special device, through which the tax is paid on these products.

Value Added

Value added is defined as an indirect tax, and it is one of the most common types of consumption tax in the world, as it is applied in more than 150 countries around the world, and it is imposed on most of the goods and services that are bought or sold at every stage of the production process, where companies By collecting and calculating this tax, and collecting it for the government’s benefit from the final consumer who bears it. The Gulf countries have adopted a 5% rate to impose them, as both the UAE and Saudi Arabia have applied them since the beginning of January 2018.

Selective tax

The government of the United Arab Emirates implemented the selective tax in the last quarter of 2017, which is an indirect tax, which is imposed on certain goods, which are considered harmful to human health or the environment, and these goods are referred to as "selective goods". They are 50% carbonated drinks, energy and tobacco drinks 100%, and finally expanded to include 50% sugar-sweetened beverages and 100% electronic smoking tools and devices.

Orphan: Achieving economic and social reforms with the support of the implementation of the tax system

Saeed Rashid Al Yateem, Assistant Undersecretary for Resources and Budget Affairs at the Ministry of Finance, said that the implementation of the tax system in the country has contributed positively and effectively to the development, competitiveness and economy of the country, as it has been implemented through advanced systems, keeping pace with the latest international developments. Accordingly, the implementation of the tax system has led to the achievement of economic and social reforms programs, as follows:

- Providing the economy with good returns, pumping into big projects, creating job opportunities, and improving the infrastructure of social services.

Low level of consumption of products harmful to health and the environment.

- Most of the companies operating in the state develop their accounting and technical systems, which positively contributed to the performance of these companies, as the business sectors have applied advanced systems to maintain comprehensive electronic accounting records of their activities, and their budget data in a precise and clear manner.

- The companies registered with tax are fully dependent on tax invoices, which raises their financial performance, as it allows them to deal with invoices regarding the collection of taxes from their customers and their payment to the Authority.

Evaluation and study

Regarding assessing the reality of implementing the two types of tax after more than two years, and the reviews that have taken place, the orphan said: “In addition to the application, the Ministry has studied some aspects of the tax policy for value-added tax and selective tax, and accordingly, it issued decisions related to laws and legislations for organizing tax treatment for various activities It included the following:

• A market control mechanism through the application of placing distinctive signs on tobacco and its derivatives, which would reduce tax evasion and administrative fines for violating the procedures related to the application thereof.

• The mechanism of returning the value-added tax paid on the services provided in exhibitions and conferences.

• Implementing a value-added tax refund system for tourists.

• Determine the activities and services that are carried out in a sovereign manner for government agencies. • Amending the schedule of charitable bodies that may recover the input tax. • Amending the schedule of specific areas for VAT purposes.

• Refund the VAT paid on goods and services related to "Expo 2020 Dubai".

Extending the range of goods subject to the selective tax to include electronic smoking devices and tools, the liquids used in them, and sweetened drinks added to them from any source of sugar or other sweeteners.

• Establish a minimum standard price on tobacco and its derivatives to correct other harmful consumption patterns by targeting cheap tobacco products.

- Easy registration

And file returns

And pay the taxes

Owed through

electronic services.