With less than a year to go before a GCC-wide value added tax (VAT) is levied, several uncertainties are creeping in over what type of items will be exempt ahead of its implementation.
In the UAE, a federal tax authority has been created to deal with VAT, which will be 5 per cent, and which may also include excise taxes on cigarettes and energy drinks.
But the Ministry of Finance is giving businesses an unspecified grace period to deal with implementation of the law, which is expected to be issued some time this year, according to Saeed Al Yateem, the assistant undersecretary of resources and budget sector at the ministry.
"We are currently in the preparation phase to implement the VAT law in 2018," Mr Al Yateem said. "Once it’s issued, the law includes a grace period to allow the institutions and companies from the private sector to align their financial systems to cope with the taxation system in the UAE. The law is expected to be published during 2017."
None of the six GCC countries have published local VAT laws and there is ambiguity about the type of products and services that will be taxable.
The issue gets more complicated because some sectors are expected to be exempt, while others, such as exports and international transport, will be zero-rated.
Businesses exempt from the VAT will not be able to recover the tax incurred on the cost of an item or a service that is not exempt from the Government and it will be up to the business to decide whether to pass on the VAT cost to the consumer. But when businesses have zero-rated services and goods they can reclaim from the Government any VAT they have paid on costs.

Source: The National