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Abu Dhabi, UAEMonday 25 June 2018

A consumer-first principle has guided VAT implementation

Inevitable glitches are the prelude to benefits that will become apparent

The introduction of VAT, creating a robust new revenue stream, bolsters the government's ability to absorb the fluctuations in the hydrocarbon market.  Sarah Dea / The National
The introduction of VAT, creating a robust new revenue stream, bolsters the government's ability to absorb the fluctuations in the hydrocarbon market. Sarah Dea / The National

This week saw the first major milestone since the UAE introduced VAT at the start of this year. Wednesday marked the first filing deadline for all businesses registered to pay the five per cent levy on goods and services. What has stood out is the relative frictionlessness with which the UAE has managed to travel the distance from being a country without a tax regime to making VAT an everyday part of life here. Part of the reason for this is the government’s energetic efforts to prepare the country for the new tax ever since it was first announced. The transformation of the economic landscape to a necessary diversification from an oil-based economy has also been helped by an appreciation that there will be growing pains.

Like any economic overhaul, the implementation of VAT has not been entirely devoid of snags. Some unscrupulous businesses saw it as an opportunity to manipulate the prices of goods under the guise of obeying the new law. Reassuringly, they have felt the full force of the law with 15 businesses in Abu Dhabi alone shut down in the first month for hiking prices. Thousands of inspections have been carried out across all emirates to ensure customers’ rights are protected and that shops are not illegally rounding up and failing to give the right change, with consumer affairs inspectors scanning products every day to detect price manipulation by retailers. What has been reassuring has been the prominence of the customer-first principle throughout, coupled with a measure of leniency towards those struggling to adapt to sweeping changes.

With about 260,000 out of an estimated 350,000 companies registering for VAT, many will have missed the first deadline and are struggling to come to grips with the bureaucratic requirements. Registration and tax returns were always going to be difficult for small and medium entities using manual accounting. The Federal Tax Authority responded by exempting businesses which had not yet registered for VAT from paying penalties and extending the deadline to register until April 30.

What is striking in both instances – of consumers exposed to risk by price-hiking businesses and businesses struggling to meet the deadline – is the urgency with which the government has responded. By embracing a responsive and dynamic rather than a rigid approach, the authorities are addressing and fixing the problems that inevitably arise in the wake of major changes. The minor glitches that we see today are the prelude to benefits that will become apparent to communities across the country in the years ahead as a significant portion of the income generated from VAT is ploughed back into local projects.