The Value Added Tax, which has been launched in the UAE and five other GCC countries from this year, includes a tax at the fixed rate of 5%. The businesses and consumers in the regions are getting themselves familiar with the laws and provisions of VAT as the launching date approaches. Meanwhile, an update regarding the tax on foods has surfaced recently.
VAT on Foods
The Federal Tax Authority (FTA) has recently confirmed that all the food items will be taxable under the VAT, which has been implemented on January 1, 2018.
Earlier, the government had commented that some essential food items such as flour, eggs, etc would be kept free of tax under VAT. However, the latest update confirms that the FTA is planning to levy a tax on all types of food, including basic food items such as bread and rice.
It was expected that the government has kept certain food categories exempt, or zero-rated, from the VAT that has been levied at a fixed rate of 5 percent. The categories put under the zero-rated slab will still be under VAT, but their supplies will not be taxed. The government had the right to treat any food item as a zero-rated supply, however, the final law doesn’t include foods.
It is expected that the standard tax rate of 5% has been levied on all food items. The confirmation will be provided soon.
The government had issued, in August, a list of products and supplies that have to keep under the zero-rated slab of the VAT. The list included the following items:
- Public transport
- Investment-grade precious metals
- The supply of crude and natural gas
- Commercial airlines
- Education and healthcare
- Financial services
The selection was done based on the nature of the product/service. Most of these items are beneficial for the general public. Some other categories like financial services have been kept in this slab mainly because it would have been too complicated to define tax on them.
Note: Food items would not be zero-rated under VAT.
In 2015, when the news of VAT was first confirmed by the government, it was also recommended that about 100 food items would be zero-rated. This changed when the FTA announced to put all food categories under the same standard VAT rate, leading to a confusion among the businesses and the public.