UAE, Bahrain unlikely to follow Saudi in hiking VAT: Experts
In a surprise move on Monday, Saudi Arabia increased VAT threefold to 15 per cent and also suspended the cost of living allowance to increase revenues.
The UAE and Bahrain are unlikely to follow Saudi Arabia in increasing value-added tax (VAT), says tax experts.
In a surprise move on Monday, Saudi Arabia increased VAT threefold to 15 per cent and also suspended the cost of living allowance to increase revenues.
“Cost of living allowance will be suspended as of June 1, and VAT will be increased to 15 per cent from 5 per cent as of July 1,” the Kingdom’s state news agency said on Monday.
Mayank Sawhney, managing director at MaxGrowth Consultancy, said the Kingdom’s move will prompt a discussion in the UAE and other neighbouring countries to increase the VAT rate in their respective countries.
“However, any such move could be detrimental to businesses and consumers in these countries, who have already been adversely impacted by coronavirus. Therefore, it is unlikely that the authorities in UAE and Bahrain will increase the VAT rates at this stage,” said Sawhney.
An official response from the UAE’s Ministry of Finance was awaited at the time of publishing this report online. The UAE had previously announced that it will not increase VAT for the next few years.
Sources and industry executive said that contrary to the Saudi move, the UAE was mulling dropping VAT temporarily until the situation surrounding Covid-19 is stabilised and economy returns back on track.
In fact, many European and Asian countries are turning to emergency tax breaks to support their economies against the Covid-19 threat. India, China, Finland, South Africa, Bulgaria, the US and the EU have announced some form of relief for their businesses and consumers in taxes to cope with the virus.
Anurag Chaturvedi, CEO, Chartered House Tax Consultancy, says considering current situation surrounding the pandemic and its impact, it will not be favourable decision to increase taxes.
“GCC governments are providing stimulus to support businesses against Covid-19 and any increase in taxes will reverse the effect and may result in deeper recession with increased inflation. KSA has more internal demand and can sustain the increased taxes whereas other GCC countries are more dependent on sectors like tourism, global trade and logistics etc. which will become unattractive by increasing tax,” added Chaturvedi, who is also secretary for ICAI – Dubai chapter.
Thomas Vanhee, partner at Aurifer Middle East Tax Consultancy, believes that the UAE and Bahrain could follow KSA given the similarities in their economic conditions but the UAE has different dynamics as compared to other countries.
“Given the similarity and the interdependency of the KSA economy with the UAE and Bahrain, it is not inconceivable that these countries will follow suit. The situation of the UAE may be slightly different since it is a confederation and not a unitary state. The dynamics between the Emirates may play out differently,” said Vanhee.
Impact of increasing VAT
Vanhee added that a hike in the VAT rate will impact consumer confidence.
“From a business perspective, those businesses which may have cared less about a mere 5 per cent VAT, will now increasingly turn their attention to transactions subject to VAT to ensure compliance and, more importantly, no VAT leakage. The economy is currently in a fragile state, therefore, this measure will be carefully weighed.”
Sawhney of MaxGrowth Consultancy noted that the increase in VAT rates in UAE in the current environment is going to have a significant adverse impact on businesses and consumers in the country.
“It could prompt exodus of more people from UAE, as such move will increase the cost of living while many people struggle to cope up with given their reduced income in the current environment on account of Covid-19,” said Mayank.
Anurag Chaturvedi noted that the impact of hiking VAT will depend on the size of the increase.
“Any increase in tax will tend to discourage activity and output. Increase in VAT may distort the choices made by households, businesses, and the foreign sector in some way.”
Penalty Reconsideration in UAE VAT
Penalty Reconsideration – UAE VAT
Reconsideration is the way to approach authority if you are not satisfied with the penalty decision issued by the authority. It is a request application that can be submitted by a Registrant/Non-registrant or tax agent after preparing a proper case study that produces evidence justifying the reason.
The authority appoints a represented member to review each application if there is any additional documents/clarification required from the applicant. The appointed member will approach the applicant by communication channels i.e. email/phone.
Based on our experience, for the last 2 years we have submitted more than 100 applications, we observed and learned that if the application is properly explained and submitted with additional supporting documents(Only in Arabic). The authority is reviewing the application and providing a waiver of penalties.
Who can submit a reconsideration application?
The application can be submitted by a Registrant/ Non-registrant and Tax Agent, who are not satisfied with the authority penalty decision. The application can submit by using an online FTA portal.
When do we need to submit a reconsideration application?
As per Article-27 of Federal Law No. (7) Of 2017 on Tax Procedures, the application must be submitted within 20 business days from the applicant being notified of the decision.
How does submit an application?
The application can be submitted by using an online FTA portal. The application is only acceptable in the Arabic language.
What are the reasons where authority will not look into your application?
As per Article-26 clause (4) of Cabinet Decision No. (36) of 2017 on the Executive Regulation of Federal Law No. (7) of 2017 on Tax Procedures. There are mainly 2 reasons:-
- Insufficiency of Funds
- Reliance on another person
In the above two cases, the authority will not look into your application.
What are the documents required to submit the application?
There are the following documents require:-
- Authorized Signatory Passport copy
- Authorized signatory Emirates ID Copy
- Authorization proof i.e. MOA/POA etc.
- A case study letter with supporting documents
How authority will approach after submission of reconsideration?
The Authority shall review a request for reconsideration if it has fulfilled the requirements and issue. Its justified decision within 20 business days from receipt of such application. The Authority shall inform the applicant of its decision within five business days as of the issuance thereof.
What if the authority approves the application?
In the case of application is approved by the authority, the penalty amount will be reverse on applicant FTA “VAT Transaction” ledger and the applicant will receive a confirmation email from authority.
What if the authority rejects the application?
If authority is not satisfied with your request application. The applicant can approach to “Tax Disputes Resolution Committee”.
What if the Tax Committee rejects the application?
If the Tax Committee is rejected the application. The applicant can approach the Court.
Private equity eyes industries crippled by coronavirus: ‘They have been waiting for this’
The coronavirus pandemic is shutting down entire sectors of the economy and putting millions of Americans out of work, but one corner of Wall Street may find opportunity amid the carnage: private equity.
The group, which includes investment giants Blackstone, Carlyle and KKR, has a record $1.5 trillion in cash ready to deploy and has been actively seeking deals across the struggling travel, entertainment and energy industries, according to a half-dozen investment bankers who declined to be identified to speak candidly about potential clients.
“They have been waiting for this type of market dislocation,” the head of mergers at a major Wall Street firm told CNBC. “I don’t think they wanted something quite this bad, but they did want a pullback in valuation.”
Private equity firms have been stockpiling cash in recent years as rising markets made it harder for them to invest, accumulating a record pile of “dry powder” for deals. The industry typically buys undervalued companies with borrowed money, taking them private to spruce up operations for an eventual sale. The high company valuations that kept them at bay collapsed this month amid widespread business closures and quarantines of some of the world’s largest cities.
But the confluence of forces at play — an oft-maligned section of Wall Street seeking money-making opportunities in an election year and amid an unprecedented global crisis that has caused thousands of deaths — could invite greater scrutiny on the industry. Critics including Sen. Elizabeth Warren have said private equity firms enrich themselves at the expense of workers and the companies themselves, which sometimes end up in bankruptcy.
“Vulture investors, especially in private equity, are waiting in the wings to scoop up scores of struggling businesses on the cheap,” tweeted Rohit Chopra, an FTC commissioner.
The first deals are likely to be investments rather than full-on takeovers, the bankers said. Transactions known as PIPEs, or private investments in public equity, are one way companies under distress can quickly raise cash. The buyer gets shares at a discount, and the new stock typically dilutes the holdings of existing shareholders.
“Private equity is trying to do PIPEs all over the place right now,” said a senior investment banker at another top Wall Street firm. The targets are “every industry where stock prices” have collapsed, this person said.
One example of a PIPE made during the last crisis: In 2008, Leonard Green & Partners bought a 17% stake in Whole Foods for $425 million, an investment that yielded more than $1 billion in profit when shares recovered a few years later.
While travel, entertainment and energy companies are in obvious need for cash infusion as demand has evaporated, over the longer term, the coronavirus pandemic could favor industries including health care and home security, according to a presentation from management consultant Bain.
Don’t take the money
For now, bank advisors are mostly telling corporations to ignore private equity money as lawmakers close in on a massive stimulus bill. The details of the $2 trillion bill, including the forms of relief struggling companies will get and at what terms, needs to be known first.
Another reason for a delay in deals: One banker said that private equity investors “only want to invest in the strongest companies” like makers of consumer staples, or top restaurant chains, and these companies aren’t yet willing to take on expensive forms of capital.
Still, even with anticipated federal aid like potential bridge loans, for many businesses, the crisis and its aftermath will take months, if not years, to play out, and collapsing revenue and share prices make them vulnerable to takeovers.
Last week, Goldman Sachs warned its clients to expect a rise in hostile takeovers and shareholder activism, according to a presentation sent to clients. The bank told clients that a shareholder rights plan, known as a poison pill, “is the single most effective takeover protection device” the companies can use, according to Vox, which obtained the memo. A Goldman spokeswoman confirmed its authenticity.
To be sure, private equity firms are also exposed to the coronavirus-induced downturn because they already own wide swaths of corporate America, including struggling retail shopping and entertainment properties. Even before the pandemic struck, lenders were increasingly concerned about defaults from companies owned by the PE industry.
As a result, many private equity firms are in “defense mode” across their portfolios, said one investment banking head.
Barbarians at the Gate
Still, because the industry’s management fees are based on investments that are locked up for years, private equity firms “should be quite resilient in the current market backdrop,” JMP Securities analyst Devin Ryan said Tuesday in a research note.
Private equity became widely known in the 1980s as a generation of corporate raiders including Carl Icahn and T. Boone Pickens sought bigger and bigger deals, culminating in the $31 billion takeover of RJR Nabisco in 1989.
The industry has swollen in size since the financial crisis, adding $4 trillion in assets in the last decade, as institutional investors including pensions and insurance companies seek out higher returns in a low-yield world. Last year, shares of PE firms Apollo and Blackstone soared roughly 90% after they changed their corporate structure to take advantage of the 2017 corporate tax overhaul.
While the market for leveraged loans has fallen off in recent weeks, leverage of roughly six times a target’s earnings is still available for private equity deals, according to the head of mergers quoted at the beginning of this article. Parties are having conversations about investments in hotels, restaurants, movie theaters and casinos, among other companies.
“These are fundamentally good businesses that are going to have a terrible year,” the banker said. “There’s an opportunity for private equity to go in there and take a meaningful stake or buy the company at a valuation they could not have gotten before.”
Mandatory for auditors to furnish details of tangible and intangible assets
The Ministry of Corporate Affairs has now made it mandatory for auditors to furnish details of tangible and intangible assets belonging to the company.
Question: I had handed over my shares and securities to my broker to cover the cost of any investments which I may make in future. I find that he has used those securities without my consent for trading on his own. I am now finding it difficult to retrieve those shares and securities though he has promised to do so in the near future. I am very much concerned about this misuse done by some brokers. Is the government taking any steps to protect investors from unscrupulous brokers?
The regulator, Securities & Exchange Board of India, has last month issued a directive that brokers can accept collateral from clients in the form of shares and securities solely for the purpose of margin pledge created in the depository system. It has prohibited brokers from making an off-market transfer of shares and securities because such transfers tantamount to change in ownership and cannot be treated as a pledge. It has been further clarified that transfer of securities to the demat account of a broker who may be a trading member or clearing member of a stock exchange is prohibited.
It is also specified in the circular issued by SEBI that brokers should open a separate demat account for accepting ‘margin pledge’. This action has been taken by SEBI to protect the interest of investors like you who have suffered in the past as a result of broking firms illegally pledging shares belonging to their clients with banks and non-banking finance companies to raise money with which the brokers enter into business activities for themselves. In case of defaults made by brokers in the past, they may apply for insolvency, but the clients whose shares have been illegally transferred have been left without recourse and would suffer losses. Therefore, in future, you should specify when you hand over your shares and securities to a broker that these should be used only as ‘margin pledge’ and should be credited by the broker in a separate demat account pertaining to such ‘margin pledge’.
Q: Auditors in the past have been found to be negligent in not reporting financial irregularities committed by companies. Shareholders and investors have therefore suffered and their investments have lost value. This brings no relief to shareholders even if the auditor is debarred from practice. Is anything being done about this?
The Ministry of Corporate Affairs has now made it mandatory for auditors to furnish details of tangible and intangible assets belonging to the company, loans given to promoters and related parties and a report on whistle blower complaints. If there is a discrepancy of more than 10% in inventories, the auditors are required to report this fact in their report to shareholders. If title deeds of immovable properties are not in the name of the company, the auditor would have to report the same.
The auditor of the holding company is required to disclose any adverse remarks which may be made by auditors of the subsidiary companies. He will also be required to give an opinion on financial ratios, the age and expected dates of realisation of financial assets and payment of financial liabilities. To reduce manipulation of books of account, auditors will have to verify whether quarterly statements filed with banks are in agreement with the books of account. Earlier, under the Companies Auditors’ Report Order, 2016, comments had to be given by auditors on 21 issues. This has now been increased to 50 issues under the revised order of 2020.
Q: My son who is working in India is required to travel to some South East Asian countries. I want to know whether any travel policy is available which would cover risks like corona virus?
Most insurance companies are not issuing new policies for travel to China and other South East Asian countries, including Hong Kong and Macau, in the wake of an advisory issued by those Governments. However, some companies like Bajaj Allianz General Insurance Co. Ltd. issue policies through the underwriting process which will be in operation until the advisory is withdrawn. Companies like ICICI Lombard General Insurance Co. Ltd. have retained the option to issue the policy on a case by case basis depending upon the perceived risks. Insurance companies generally assess the situation before issuing a policy, considering the region or area where the travel is to be undertaken.
A multi-trip or annual policy does not require the applicant to give details of his travel in advance. Hence, policies are generally issued. However, at the time of claim, expenses relating to China are rejected on the ground that an advisory has been issued for not travelling to that country. Generally, people are being treated or quarantined at Government facilities. Therefore, the claim for medical expenses would not arise.