What is tax?
A tax is compulsory financial charge by which governments raise revenue to pay for public services. The government levies taxes on the citizen of the country to produce income for business projects to increase the country’s economy to lift up the standard of living of the people. Government raises revenue from taxes which is used for the betterment of people. These revenue is used to build hospitals, schools and university, defense and other important aspect of daily life.The government collects taxes by two ways.
1. Direct tax is collected by government from individual on whom it is imposed i-e income tax, corporate tax.
2. Indirect tax is collected for government by an intermediary from that ultimately pays the tax.Tax is the major revenue collected by government.
What is vat?
Vat stand for value added tax which was introduced in the UAE on 1 January 2018 with a rat of Vat 5%, as a general consumption. Tax placed on a product whenever value is added at each stage of the supply chain from production to the point of sale.it is one of the most common types of consumption tax found around the world. A business pays the government the tax that it collects from the consumers while it may also receive a refund from the government on tax that is has paid to its supplies. Vat is an indirect tax and is imposed at each point of sale which is collected from consumers. UAE imposes vat on a taxable registered businesses on a taxable supply of goods or services. FTA is the central authority for implementing vat. FTA provides guidance, collects VAT and conducts Audits.
What is the difference between Vat and Sales Tax?
Value added tax and sales tax are considered same but there are many key differences. A sale tax is also a consumption tax, just like vat. Sales taxes are levied on transactions involving goods.in addition it is only imposed on the last and final sale to the consumers while vat is imposed on goods and services and is charged through the supply chain including on the final sale value added tax is also levied on imports of goods and services.
Some countries prefer a vat over sales taxes for a range of reasons because it is considered a more sophisticated approach to taxation as it makes businesses serve as tax collectors on behalf of government and cuts down tax evasion
Why is the UAE Implementing VAT?
Like, other countries UAE also provide citizens and residents with many different public services to facilitate them. The UAE federal and emirate government to reduce dependence on oil and hydrocarbons as a source of income UAE provide services such as roads, hospitals, school parks and other services. These services are paid for from the government budgets. VAT is another source of revenue which contribute to provide such services to citizens. Value added tax is the major source of income of UAE which was introduced on 1 January 2018 with a rate of 5%.