Dubai - Majority of expatriates in the UAE are familiar with consumption tax system
Published: Wed 20 Jul 2016, 6:13 PM
Updated: Wed 20 Jul 2016, 8:41 PM
As several European, Asian and African countries have introduced Value Added Tax long before, the expat community here are familiar with it and its quite higher rates.
Currently five countries in the Middle East region have adopted Value Added Tax (VAT) or similar broad based consumption tax system (General Sales Tax or GST).
The UAE along with other Gulf countries will introduce the VAT for the first time in January 2018 at a standard rate of 5 per cent.
All European nations, several Asian and African countries have imposed VAT as it is simple to implement and directly relates to the type and level of consumption.
EU VAT rates
The EU member states may apply a standard rate of VAT and one or two reduced rates. No higher rates may apply. Until 31 December 2017, the standard rate must be at least 15 per cent. Reduced rates may not be less than 5 per cent and may apply only to certain goods and services.
As an exception to the reduced rate rule, the member states may continue to apply a reduced rate lower than 5 per cent. Special reduced rates may also apply in certain territories.
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The Gulf Cooperation Council (GCC) States are expected to adopt a standard VAT system with a single rate applying to most goods and services and potentially some limited exceptions such as basic food items, health care and education.
VAT is an indirect tax on consumption and it applies to most goods and services and is levied on business transactions, i.e. on goods and services supplied in the course of business. Although VAT applies to most goods and services, in countries where VAT operates there are normally some exceptions.
A majority of expatriates in the UAE belongs to Asian countries such as India, Pakistan, Sri Lanka and Bangladesh.
There is no VAT on real estate but sale and purchase of properties are subject to stamp duties in many countries including India and Pakistan. India imposes one per cent VAT on gold and silver jewellery but these are exempt from sales tax in Pakistan.
India
In India, VAT implemented in most of the estate from April 1, 2005 and replaced the sales tax regime, according to Ernst & Young's 2016 Worldwide VAT, GST and Sales Tax guide.
The standard rate generally ranges from 12.5 per cent to 15 per cent. The standard rate applies to all supplies of goods unless a different rate is specified in law.
Other VAT rates are zero per cent, one percent, 4 per cent to 5.5 per cent (depending on the state) and 20 per cent.
Some goods are exempt from tax such as fruits and vegetables, agricultural implements and books. There is one per cent VAT on gold, silver and other precious metals and articles made of such metals.
Medicines, intangible goods, industrial inputs, information technology products and telephones are subject to 4 per cent to 5.5 per cent VAT.
Pakistan
In Pakistan, it's called general sales tax or simply sales tax, which is a modified form of VAT. Sales tax was introduced in the country on November 1, 1990.
Standard rates are 17 per cent for goods; 16 per cent, 15 per cent and 14 per cent are for services.
The standard tax rate of 17 per cent is imposed on the value of the supply of goods or at the import stage. However, in certain cases, the value of the supply of certain goods is based on the manufacturer's retail price (not the sales price).
Most services are taxed at 16 per cent in Punjab and Islamabad, 14 per cent in Sindh, and 15 per cent in Khyber Pakhtunkhwa and Balochistan. However, telecommunication services are taxed at 18.5 per cent in Islamabad, 18 per cent in Sindh and 19.5 per cent elsewhere in the country.
Examples of goods that can be taxed based on the manufacturer's retail price are: fruit juices and vegetable juices, ice cream, aerated water or beverages and drink syrups, cigarettes, toilet soap, detergents, shampoo, toothpaste and shaving cream, perfumery and cosmetics, powder drinks and milky drinks, tea, toilet paper and tissue paper, spices sold in retail packaging, shoe polish and shoe cream, and fertilisers among others.
Egypt
In Egypt, the standard GST rate is 10 per cent. However, rates ranging between 1.2 per cent and 45 per cent apply to some goods and services, and rates ranging from 1.2 per cent to 10 per cent apply to construction activities. Cars of 1,600 cc or less are subject to 15 per cent tax and over 1,600 cc and less than 2,000 cc are facing 30 per cent tax. Tax for locally manufactured cars over 2,000 cc is 30 per cent.
Philippines
The country introduced VAT from January 1988. Taxable transactions are liable to VAT either at the standard VAT rate of 12 per cent or at the zero rate. Examples of VAT exemption in the country are: the sale or import of agricultural or marine food products in their original state, livestock or poultry used as or for producing for human consumption etc.
Morocco
The country implemented the VAT from January 1986. The standard rate of VAT is 20 per cent. Under Article 99 of the Moroccan Tax Code, lower rates apply to specific business activities, including: supply of water, electricity and pharmaceutical products at 7 per cent; and petroleum products, banking transactions, and hotels' and restaurants' operations at 10 per cent.
abdulbasit@khaleejtimes.com
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