GST i.e. Goods and Service Tax came into effect on 01.07.2017 in India which subsumed most of the indirect taxes in India. Today GST contributes more than Direct Tax towards the GDP of India. The implementation of GST was never an easy task. There was not any law for service tax and bringing in an Act for GST was one of the biggest changes in the tax structure of India.
On the other hand VAT i.e. Value Added Tax was introduced in Dubai and it became effective since 01.01.2018. Both GST and VAT are based upon the concept of payment of tax on the value addition made by the supplier. Both are destination based tax and both are different names for Indirect Tax.
But there are certain differences between the two . Both possess salient features of its own which make them unique. So lets discuss the characteristics of both the tax structure which differentiates one from another:-
1. TAX RATE :- On one hand , to promote the awareness amongst t'he public the advertisements were circulated that GST is bringing One Tax and the dream of “One Nation One Tax” has been achieved, on the other hand multiple tax rates under GST increased the technicalities and complexities to another level.
Whereas in the UAE Vat is chargeable at a uniform rate of 5% on the addition made by the supplier with the few exception.
2. Compliances :-
a. Registration Requirement : - Under GST, if the same company transfers goods from one state to another to its own Outlet or branch office or its godown/ warehouse, they are required to take separate registration in both the states and such branch transfer shall be treated as supply of goods from one registered person to another registered person and the TAX Invoice shall be raised and the same shall be treated as Sale from one office and purchase in another branch.
Whereas in UAE VAT, even if the person has multiple branches at various locations, only one registration is required. With similar objective, if two or more persons are related parties in the business, they are allowed to take VAT Group Registration.
b. Returns : - Under UAE VAT regime , VAT return filing period is generally quarterly and in few cases only monthly returns are required to be filed by certain class of businesses . In the case of GST, in India the normal registered person is required to file GSTR -3B, GSTR-1 and Annual Return. The composite dealer is required to CMP Return. The basic objective of filing of multiple returns is to ascertain the flow of input credit but it has increased the burden of compliances on the taxpayer. There is no such ease on the part of the taxpayer that he can understand the tax, tax rate, tax structure. And non compliances of various provisions may also cost high for the registered person. If the business man is not registered then he faces issues with other customers/ vendors/ suppliers who are registered under GST and if a business is registered then they have to comply with all monthly quarterly and annually requirements of the tax system.
3. Reverse Charge Mechanism : - In India , the importer is required to pay GST while importing the goods into India and on later stage, ITC is claimed while in the case of UAE VAT, the importer is not required to pay VAT in cash. The tax is paid at the time of selling the imported goods.
4. GST Law VS UAE VAT : - GST law is very thorough and runs into pages and even today various explanations, circulars, notifications are regularly issued by the Finance Ministry for better interpretation and clear understanding of the newly introduced law. Whereas UAE VAT Laws are short and hence limits the specificity. The UAE says that the Arabic version of regulation is a basic version and English version available on government official website is not considered as an official translation. The English translation version slightly varies from the basic version and further leading ambiguity and interpretation issues.
Keeping these complexities in mind for both India and the UAE, it makes sense to talk to a tax consultant who is well versed with what’s happening in the market and understands the nuances of these tax structures and their compliances.