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VAT: confusion among the small retail business on how it works

The value-added tax (VAT) had a smooth roll-out in UAE on January 1, 2018, with most establishments and customers welcoming it.

As is the case with any large-scale rollout, there were minor hiccups — in this case, small retailers, who were unsure of charging VAT to their customers, and some, who were charging VAT despite not having registered for it.

Registration is mandatory for any firm with an annual turnover of Dh375,000 or more, and optional for those raking in between Dh187,500 and Dh375,000. Any shop with less than Dh187,500 as turnover needn’t register under this law.

And this resulted in confusion.

Figure this: If a salon isn’t falling under the category of Dh375,000 it needn’t register or implement VAT. However, the products being purchased to run daily affairs – shaving cream, talcum powder, scissors, waxes, shampoo, gels and others are all falling under the tax bracket. So when a hairdresser purchases these from any hypermarket paying VAT, he will naturally pass on the extra amount onto customers.

Another issue is manual billing without any invoices or receipts.

Now, to make it easy for consumers, the UAE Ministry of Finance has put out a short video on points consumers should keep in mind while making payments.

Here are a few important things to consider while making payments, according to the ministry.

1. The invoice should include the seller’s Tax Registration Number (TRN) and the amount of VAT charged.

2. Ensure that the tax number is mentioned on the invoice before paying any VAT.

3. Do not pay VAT to a company which is not registered under the tax system.

Therefore, if your grocery charges you extra and says it’s because of the VAT, as them to produce an invoice with their TRN. If they do, then you should pay VAT. If they don’t, you shouldn’t pay a dirham extra.


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