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The Gulf Cooperation Council (GCC) announced the introduction of a new tax system VAT-Value Added TAX in all its member countries - United Arab Emirates (UAE) Kingdom of Bahrain, Kingdom of Saudi Arabia (KSA), Sultanate of Oman, State of Qatar and State of Kuwait.
Ever since it was announced, there has been an increased demand among businesses in these nations to understand the taxation subject well in advance and to be prepared, as certain existing business practices will have to undergo changes. On this note, as the first out of a series of articles on GCC VAT, we are providing a brief about the Introduction to taxes.
The term Tax simply refers to a fee or sum of money paid to the government by an Individual or by business entities. Today almost all the countries in the world have one or more than one tax system in place, which enforces an individual or business entity to pay different types of taxes, either on the income or on different economic activities carried out in their country. Based on this, the tax can be broadly classified into Direct Tax and Indirect Tax .
Let us understand What is Direct Tax and Indirect Tax?
Direct Taxes is type of tax in which the incidence of tax and burden of tax is on the same person or business entity. These taxes are typically levied on the income of an individual or business entity.
Example Corporate Tax : Taxes paid on the Profit or gains and business entity earns Income Tax : Tax levied on income an individual earns
Indirect Taxes is type of tax in which the incidence of tax and burden of tax is on the different person or business entity. This typically levied on various economic activity like manufacturing, sales, services etc.
- Sales Tax : Tax levied on sale of goods
- Excise Duty : Tax on manufacturing of goods
- Service Tax : Tax levied on rendering of Services
WHO is liable to Pay Tax An Individual or person who earns, need to pay tax directly to the government.For example, Income tax needs to be paid by an Individual directly to Government.In this case, tax burden is shifted to end consumer i.e. the business entity is like appointed agent of government who collect tax from the end consumer and deposit the tax to Government account