The Gulf Cooperation Council (GCC) announced the introduction of a new tax system, VAT, Qatar and the State of Kuwait in all its member states-United Arab Emirates (UAE), Kingdom of Bahrain, Kingdom of Saudi Arabia (KSA), and Sultanate of Oman. Since the announcement, due to changes in certain existing business practices, the need for companies in these countries to understand tax topics and prepare in advance has increased. Please note here that as the first article in the GCC VAT series, we will briefly introduce taxation.

The term tax only refers to fees or amounts paid by individuals or business entities to the government. The taxation mechanism is an old concept. It can be traced back to ancient Egypt, Greece, Roman Empire, etc. Today, almost all countries in the world have established one or more tax systems that force individuals or business entities to pay different types of taxes on their income or different economic activities in their country. Based on this, taxes can be roughly divided into direct taxes and indirect taxes. Let us understand what are direct taxes and indirect taxes?

Details Direct Tax Indirect Tax

Meaning Direct tax is a type of tax in which the occurrence of tax and the tax burden belong to the same person or business entity. These taxes are usually levied on the income of individuals or business entities. Indirect tax is a type of tax in which the occurrence of taxes and the tax burden are borne by different individuals or business entities. This usually applies to various economic activities, such as manufacturing, sales, service, etc.

Example company tax: tax earned on profits or corporate entities Income tax: tax earned on personal income Business tax: tax on sales of goods Consumption tax: tax on product manufacturing services

The WHO is responsible for taxing the income of individuals or individuals who need to pay directly to the government. For example, income tax needs to be paid directly to the government by individuals. In this case, the tax burden is transferred to the final consumer, that is, the business entity acts like a designated agent of the government, collecting tax from the final consumer and depositing the tax into the government account

The proposed new tax system value-added tax is an indirect tax levied on the supply of goods and services in the GCC member states.

Let us understand-why tax?

The government has been providing citizens and residents with many public services, such as healthcare, roads, public schools, parks, and police services, all of which are provided by the government budget. Taxation will help increase new sources of income, which will help provide high-quality public services. This will also help the government’s fiscal revenue to reduce its dependence on oil and other hydrocarbon natural resources to some extent.

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