Late Good Evening Friends. This article is more of an extempore. Neither planned, nor thoroughly thought. So will need your feedback on same to decide whether I continue writing these kind of articles or I go my usual way of planning, sketching, working, re-working and then coming up with final output. For ease of understanding, let me first set the stage with all the actors. In this particular scenario, we have three actors: Azad, Basheer and Cathy. Azad is supplier of dry-fruit boxes to Basheer who runs a retail supermarket. Cathy is a regular customer of the supermarket. Azad & Basheer are registered with FTA and Basheer’s tax period is monthly. On 10th July 2018; the tax consultants of Basheer pay him a visit for filing VAT Return for the tax period 01-Jun-2018 and 30-Jun-2018. Basheer provided the tax consultants with the following: 1. Trial Balance 2. Tax Invoices received from Suppliers 3. Tax Invoices issued by Basheer from Point of Sale (POS) SystemTax Invoices from Azad of AED 800 were provided showing VAT Amount of AED 40 for 2 dry-fruit boxes purchased at AED 400/box during the month. Tax Invoices were compliant in line with Article 59 of Decree Law. 2 tax invoices issued from POS for sale of these 2 dry fruit boxes were also vat compliant. One tax invoice was for AED 500 and another one was for AED 450. Based on this information, tax consultants filed the return for AED 7.5 and they moved out. Payable Tax = Vat Output – VAT Input = AED 47.5 – 40 = AED 7.5 The entire exercise took an hour and Basheer was relieved that return has been filed and the company is VAT compliant. Reading the above details, all looks good but VAT compliance has more to it. For me, the question is why the second dry fruit box was sold AED 50 cheaper when the purchase price is same. The first answer which pops inside us is Basheer wanted to sale it at a discount of AED 50. But that’s the answer given by inner voice and we need to verify the same against the actual document i.e. tax invoice. The tax invoice of AED 450 was checked and found to be correct. The collection of only AED 450 in cash was made but additionally there appeared a coupon of AED 50 applied to it. Reading last line above, the eyes may brighten up and brain may start throwing answers again that VAT has not been charged on AED 50 by Basheer. But again before arriving at the conclusion, let us try to get the actual facts. Basheer was approached and appraised of the situation. On hearing the concern, he clarified that both the sales were made to Cathy on different dates. On first sale, the voucher of AED 50 was given to Cathy without any consideration and during second sale, Cathy produced and redeemed the voucher for same value. Hence the voucher is as good as discount at time of redemption. The view of Basheer is supported by Article 28(4) of ER and seems all in order. During scrutinizing of accounting entries related to above transactions, the following entry was found Cash A/c_______________Dr. 50 To Azad A/c 50 (Collection of amount against voucher redemption in line with agreement) On seeing this entry, the agreement copy was requested and on reviewing the agreement, the following came to the light. The vouchers were provided by Basheer on understanding with Azad that any voucher which gets redeemed will be sent back by Basheer to Azad and for each voucher redeemed, Azad will pay AED 50. The entry above is for the collection against those redeemed vouchers.
On seeing this, does your answer change?It may or may not but the important part is that the entire exercise did not last 1 hour and took considerable amount of time. This is when we restricted the scenario to two transactions, assume when transactions are done in hundreds and thousands. My dear friends’ compliance is not an hour’s job and not only number matching game. This requires considerable time and effort. FTA has been emphasizing and reemphasizing on the same. In their recent public clarification also, the glimpse of the same can be seen when they clarified and I quote “………., it is necessary to consider the contractual and legal arrangements in full to determine the reason……………..” Regarding the answer to the scenario above, whether the same should be considered as supply of service by Basheer to Azad or the same to be treated as supply of goods without discount; please refer Article 28(2) of ER and you will get your answer.]]>