India launches ‘transparent taxation’
At present, only the tax department/officer of the city where the PAN of the taxpayer is registered can scrutinise the tax records.
Indian Prime Minister Narendra Modi on Thursday launched a ‘transparent taxation’ platform, among other schemes, aimed at carrying forward the journey of direct tax reforms.
The move brings into effect faceless assessment of taxpayers, faceless appeals and the Rights’ Charter for taxpayers who would not be harassed or treated with suspicion from here on.
Speaking at the launch of ‘Transparent Taxation Honouring the Honest’, Modi said that India is among a few countries giving such rights and dignity to taxpayers. He said that the charter has been introduced with defined rights and responsibilities. From here on, the income tax department cannot doubt anyone without basis, he added.
Modi believes the structural reforms will add a new dimension, adding that these should be policy-driven and holistic. He cited that technology has changed, allowing for the scrutiny process to be distributed randomly. Furthermore, he said that the tax scrutiny rate was reduced by a fourth in the last few years; in fiscal year, there was only 0.26 per cent scrutiny.
Speaking of the recent measures, he said that nearly 300,000 cases were resolved under the Vivaad Se Vishwas scheme. He also appealed to citizens, sayin that those who are capable of paying taxes but not in the tax net should also voluntarily pay dues.
Even though the new ‘taxpayer’s charter’ is aimed at residents, non-resident Indians (NRIs) also will benefit from this proposal. India now joins countries like the United States and Canada, which have fundamental rights enacted under their income tax laws.
“For NRIs, this means less hassles from the tax bureaucracy; now, the taxpayer will know what to expect from the department. The new tax regime has also expanded the scope of faceless assessment and has done away with territorial jurisdiction while substituting individual discretion with team-based assessment,” said Bal Krishen, chairman of Century Financial.
“Many NRIs face problems due to the arbitrary nature in which some income tax officers behave; the new system will prevent this harassment. Nonetheless, the new system does have some drawbacks. For example, if there are complex international financial transactions, it might be challenging for the taxpayer to explain the transaction in the absence of a face-to-face interaction. Only a qualified tax officer will be able to take a well-informed decision and hopefully the entire department will be trained on these aspects. For the NRI, from an overall perspective, the new system is certainly a step forward.”
Dixit Jain, managing director at The Tax Experts DMCC, said: “A lot of transparency will come as there will be faceless interaction with assessees, which will reduce harassment and fair judgement without any manipulation. It will increase confidence; also, more and more people will file tax returns to contribute to the country.”
Jain added that earlier, a lot of NRIs were afraid to file tax returns as they used to think that if they file, they will get notices from the income tax department and will then have to face unnecessary trouble while dealing with officers.
“The introduction of the ‘No Influence’ policy and no face-to-face interaction will encourage NRIs to happily declare their eligible income and pay taxes or claim refunds without any worry. It is a brilliant move by the Modi government to encourage more people to file tax returns so it can contribute to the Indian economy.”
The launch of the Transparent taxation – honouring the honest is based on easing compliance for all taxpayers, more specifically for NRI’s – and is a welcome initiative. Few reforms were already in practice with most of the notice and assessments being conducted under e-proceedings, says Dubai-based Kinjal Bagadia Mehta, chartered accountant and tax consultant.
This initiate will lead to the digitisation of the functioning of the Income Tax department which will eventually eradicate corruption, harassment of the taxpayers and reducing litigation. At present, only the tax department/officer of the city where the PAN of the taxpayer is registered can scrutinise the tax records. By launch of Transparent taxation system, this will change now and with technology, scrutiny will be assigned to tax officers randomly. This will keep changing constantly.
“The idea of honouring honest taxpayers through such a platform will encourage many NRIs to participate in development and growth of India. This will also go a long way in making the tax filing process smoother and easier. A NRI will now be assured of fair, courteous, and rational behaviour from taxman. This people centric and public friendly approach will ease being tax compliant in India ultimately giving confidence to NRIs to file the tax returns, pay tax and also invest in India,” said Mehta.
FTA clarifies VAT application for e-commerce
The UAE’s e-commerce has been growing exponentially over the last few years.
The UAE’s Federal Tax Authority (FTA) on Wednesday further clarified that though five per cent value-added tax (VAT) will be applicable to general e-commerce purchases however there are a number of special rules that apply specifically to e-commerce transactions.
It said the tax will also be applicable on digital services including supply of domain names, web hosting and remote maintenance programmes and equipment, software, images, text and information provided electronically such as pictures, screen savers, electronic books, documents and other digitised files such as music, movies and games on demand and online magazines.
Other services identified under the banner of “electronic services supplies” include the supply of advertising space on a website and the rights associated with that advertisement, and political, cultural, artistic, sports, scientific, educational or entertainment broadcasts, including broadcasts of events, live streaming via the internet, the supply of distance learning services, and services of any equivalent type that have a similar purpose and mission.
The growth of e-commerce sector picked up even further in the wake of coronavirus pandemic with UAE residents on average spending over Dh6,000 a year.
“In light of the increasing importance of the e-commerce sector, clear mechanisms for procedures have been identified. Value-added tax, as it relates to the supply of goods and services through electronic means, contributes to supporting the activities of this vital sector, which depends on a locally developed digital and technological infrastructure,” said Khalid Ali Al Bustani, director-general of FTA.
It added that taxable persons should charge VAT to customers when supplying taxable goods or services at the standards rate of 5 per cent or at a rate of zero per cent where law permits. If the supplies are exempt from tax, these supplies are not treated as a taxable supplies and therefore no VAT needs to be charged on these supplies.
Anurag Chaturvedi, CEO of Chartered House, said many international service providers, who do not have place of establishment in the UAE, are still unaware of the registration requirement for VAT in the UAE when they provide services to the UAE consumers.
As per the Article (18) of Decree Law, a non-resident shall register for tax and makes supplies of goods or services, there is no threshold limit applicable to the non-residents. “This means if a consumer in the UAE buys a service/product from an online platform (social media, e-commerce, education, games, arts, fashion, music or any other services), the non-resident shall register for the VAT within the stipulated time and comply with local tax legislation,” added Chaturvedi.
As per the UAE legislation, the place of supply of electronic services shall be UAE if the use and enjoyment of the supply is within the country. Pursuant to Article (31) of the Decree law, provision of electronic services are subject to tax.
“If Netflix is being used by an end-user in the UAE, the service is subject to tax in the UAE. Many international service providers, who do not have place of establishment in the UAE, are still unaware of the registration requirement for VAT in the UAE when they provide services to the UAE consumers,” added Charuvedi.
Combating coronavirus: UAE businesses seek VAT waiver for a year to stimulate demand
VAT relief will stimulate demand for consumer goods in the country.
Private and family owned businesses in the UAE have requested the government to waive off value-added tax (VAT) for six months to one year in order to help stimulate demand in the economy.
A letter sent by family-owned business groups to Dubai Supreme Fiscal Committee have suggested establishing a private-public sector committee, reducing VAT from five per cent to two per cent, eliminating licensing fee, accelerating payment to suppliers and contractors, freezing of 2.5 per cent market fee, 50 per cent reduction in customs fees and water and electricity in order to help them overcome Covid-19 impact.
Rizwan Sajan, chairman and founder of Danube Group, said demand is slow across all the sectors due to job losses and salary cuts, therefore, VAT relief will stimulate demand for consumer goods in the country.
“This, in turn, will help businesses and the overall economy. Importantly, many countries around the world have also offered tax sops to businesses and consumers. Since VAT is the only consumer tax applied here, and waiving off this tax can stimulate demand. We request government to consider it on a priority basis. We are quite confident that this step will expedite the recovery of the UAE economy as country reopens. Moreover, we also requested waiver on utility and telecom charges,” said Sajan.
On Monday, May 11, the UAE’s Ministry of Finance announced that it will not increase VAT after Saudi Arabia tripled it to 15 per cent.
Rajiv Raipancholia, CEO of Orient Exchange, said remittances have dropped by 30 to 40 per cent and there are job losses and reduced salaries due to Coronavirus impact.
“A waiver of VAT till year-end would support the end-consumer in terms of reduced expenses to make ends meet. At the same time, landlords need to give a rent free period of two to four months to retailers otherwise the brick-and-mortar model will face huge challenges of continuity,” said Raipancholia.
Suresh Kumar, Chairman of the Indian Business and Professional Council (IBPC), said it is good if the businesses start to do well as a result of these measures because the amount of VAT collection after 6 months will more than offset loss of revenues for the government when business activity picks up.
“It is certainly worthwhile as businesses are operating on thin margins and with social distance in place at workplace, the cost will go up. So any such relief that businesses will get is good. I think six months of VAT waiver is a good period. It will give businesses an opportunity to restart their operations in fulls swing,” he said.
He suggested that sector-specific should be taken that will have better and strong impact on those sectors. “We have been regularly communicating and authorities are also actively participating,” he added.
UAE rules out any change in VAT rate after Saudi hikes it to 15%
In a surprise move on Monday, Saudi Arabia increased VAT threefold to 15 per cent.
The UAE’s Ministry of Finance (MoF) ruled out any plan to hike value-added tax (VAT) following Saudi Arabia’s announcement of a three-fold increase in VAT on Monday.
VAT was introduced in the UAE on January 1, 2018 at five per cent on several goods and services.
Younis Haji Al Khoori, Undersecretary of MoF, said the focus is to work with all government entities to assess the priorities for the post-Covid-19 stage. Furthermore, the ministry will reorient the financial resources to prepare for the future and continued growth to ensure the security and safety of the communities.
In a surprise move, Riyadh increased VAT rate from five per cent to 15 per cent and also suspended the cost of living allowance to increase revenues with effect from June 1, 2020.
Sources and industry executive privy to the matter said that contrary to the Saudi move, the UAE was mulling dropping VAT temporarily until the situation surrounding Covid-19 is stabilised and the economy returns back on track.
Also, 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.
“We at the MoF are studying our financial systems to ensure their readiness to manage the next stage and support all vital sectors. We are devising several programmes and projects to enhance our ability to continue the development process and to put people as our top priority. This is essential to build a secure future and achieve the well-being and stability of our society. The UAE has always been keen to take precautionary measures and launch financial initiatives, which protect the national economy and support various business sectors in the country,” said Al Khoori.
The #UAE has taken exceptional measures to contain the effects of the global #coronavirus #pandemic that has affected even the largest economies, to protect its economy & reduce the economic repercussions of the crisis on the business sector & on various sectors of society.
Analysts told Khaleej Times that increasing VAT would hurt the UAE’s non-oil sectors and also dampen consumer confidence at a time when the governments around the world are trying to stimulate demand to boost economies.
Khatija Haque, head of Mena Research at Emirates NBD, said hiking VAT in the UAE would be counterproductive as the emirate’s budget commitments are not as large as Saudi Arabia’s.
“While we do expect the UAE’s budget deficit to register a significant deficit of around 10 per cent of GDP in 2020, this follows two years of budget surpluses. Raising VAT in the UAE at a time when consumers are already struggling with layoffs and paycuts and businesses have seen demand contract severely would be counterproductive. It would not raise non-oil revenue significantly and further weigh on already weak aggregate demand,” she said.