“Understand the basics” and “a little knowledge is a dangerous thing” are two of those tiresome commonplaces that most people think get too much air time. They are, however, true, as was recently brought home to me in the context of the imminent introduction of VAT in the GCC.
Late last month, I took part in a couple of the panel discussions at the first GCC VAT Forum held in Dubai. It was a well-attended event, with speakers comprising chief financial officers and finance directors/managers from the business sector, regional leaders of VAT and indirect tax from the big global accountancy firms, specialist VAT tax lawyers and tax compliance software specialists. In essence, the audience heard what VAT is and how to prepare for its implementation.
While travelling after the conference, I happened on an article written in an international newspaper by David Malpass, who is described as “a senior economic adviser to the Trump campaign”. The premise of the article was that, because of its own ineptitude, the United States had recently been getting a raw deal from the rest of the world. Among examples given was the following:
“The North American Free Trade Agreement, for example, grew to 1,700 pages, yet still allowed Mexico to enforce its value-added tax on American products while exporting goods to the United States duty-free.”
This short example raises a number of points of interest, such as the relationship between free trade agreements (FTAs) and taxation, like the gargantuan size of some FTAs, but also about the fundamental principles of VAT – any VAT.
It is here that the need to understand the basics kicks in. Without, for present purposes, providing an exhaustive list, those “basics” include: (1) VAT is a tax on consumption; (2) VAT is levied on a “destination” basis; (3) VAT is a fiscally neutral tax. It is said that the tax should “flow through” the VAT-registered businesses in the production and distribution chains.
Those attending the conference, or who are otherwise educating themselves about VAT, will readily become familiar with the (1), (2), (3) just set out.
Going back to the extract from the article, it reads as though the North American FTA has allowed Mexico to do something, which it ought to have been prohibited from doing.
The proposition, however, must be checked against the VAT “basics” to ascertain its accuracy.
American products sold in the US are, self-evidently, not subject to Mexican tax, so any “enforcement” of VAT by Mexico can only be on American products imported into Mexico. In pursuance of the fundamental principle that VAT should be levied at destination – see “basic” (2), above – Mexico should apply its VAT regime to such goods. Mexico is right, not wrong, to do so.
This can be tested another way, by asking the following question: where is a product imported from the US to Mexico likely to be consumed? The answer, obviously, is Mexico. As VAT is a tax on consumption – see “basic” (1), above – the conclusion is the same: Mexico should apply its VAT to the product.
But what about the ability of Mexico to export products to the US tax-free? This seems to be held out as an intolerable state of affairs. Isn’t that iniquitous? Well, no; it isn’t.
Fiscal neutrality – see “basic” (3), above – means that the burden of VAT should be borne by the consumer, not by the businesses that produce or distribute the product. The Mexican producer/exporter will have obtained supplies (parts incorporated in the manufacture of the product, or transport and other services) that will have been taxable, and which tax it will have paid to its own Mexican suppliers (as tax on its inputs). However, as the product has been exported from Mexico, it has not been consumed there. So for the VAT to flow through the Mexican exporter’s business, the exporter must get its input tax back. Hence, Mexico should repay input tax credits to Mexican exporters. (Once in America – where the goods will, in all probability, be consumed – the relevant US (or state) tax authority can apply its tax, usually known as a “general” or “retail” “sales tax” (GST or RST).) Once again, Mexico is right to repay input tax credits to exporters.
The equation put forward by the senior Trump economic adviser is beguilingly simple: Mexican goods exported from Mexico to the US are not taxed in Mexico. US goods exported from the US to Mexico are taxed in Mexico. How unfair (to the US) is that?
But through an understanding of the basics of VAT, that can be shown to be a false parallel.
You could just as well say (but a senior economic adviser to Trump might not want to): US goods exported from the US to Mexico are not taxed in the US. Mexican goods exported from Mexico to the US are taxed in the US. How unfair (to Mexico) is that?
The correct analysis, under VAT law, is that taxable goods, despatched from one country to another are not taxable in the country of export, but are taxable in the country of import. It doesn’t matter which the countries are. That is a fundamental tenet of VAT law.
The moral of the tale is not to question the economic savvy of one of Trump’s senior advisers, but to point out that a roomful of delegates from the UAE and around the Gulf who attended a VAT conference should now have a better understanding of the basics of VAT.
Between now and implementation day(s) for VAT across the GCC, there will need to be many more roomfuls who acquire an understanding of the basics of VAT. A solid grounding in the basics will avoid the dangers of a little knowledge.
Michael Patchett-Joyce is a commercial lawyer and arbitrator based in London and the UAE
business@thenational.ae
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Family reunited
Nazanin Zaghari-Ratcliffe was born and raised in Tehran and studied English literature before working as a translator in the relief effort for the Japanese International Co-operation Agency in 2003.+
She moved to the International Federation of Red Cross and Red Crescent Societies before moving to the World Health Organisation as a communications officer.
She came to the UK in 2007 after securing a scholarship at London Metropolitan University to study a master's in communication management and met her future husband through mutual friends a month later.
The couple were married in August 2009 in Winchester and their daughter was born in June 2014.
She was held in her native country a year later.+
Cinco in numbers
Dh3.7 million
The estimated cost of Victoria Swarovski’s gem-encrusted Michael Cinco wedding gown
46
The number, in kilograms, that Swarovski’s wedding gown weighed.
1,000
The hours it took to create Cinco’s vermillion petal gown, as seen in his atelier [note, is the one he’s playing with in the corner of a room]
50
How many looks Cinco has created in a new collection to celebrate Ballet Philippines’ 50th birthday
3,000
The hours needed to create the butterfly gown worn by Aishwarya Rai to the 2018 Cannes Film Festival.
1.1 million
The number of followers that Michael Cinco’s Instagram account has garnered.
From exhibitions to the battlefield
In 2016, the Shaded Dome was awarded with the 'De Vernufteling' people's choice award, an annual prize by the Dutch Association of Consulting Engineers and the Royal Netherlands Society of Engineers for the most innovative project by a Dutch engineering firm.
It was assigned by the Dutch Ministry of Defence to modify the Shaded Dome to make it suitable for ballistic protection. Royal HaskoningDHV, one of the companies which designed the dome, is an independent international engineering and project management consultancy, leading the way in sustainable development and innovation.
It is driving positive change through innovation and technology, helping use resources more efficiently.
It aims to minimise the impact on the environment by leading by example in its projects in sustainable development and innovation, to become part of the solution to a more sustainable society now and into the future.
The biog
Age: 19
Profession: medical student at UAE university
Favourite book: The Ocean at The End of The Lane by Neil Gaiman
Role model: Parents, followed by Fazza (Shiekh Hamdan bin Mohammed)
Favourite poet: Edger Allen Poe
Sweet Tooth
Creator: Jim Mickle
Starring: Christian Convery, Nonso Anozie, Adeel Akhtar, Stefania LaVie Owen
Rating: 2.5/5
if you go
The flights Fly Dubai, Air Arabia, Emirates, Etihad, and Royal Jordanian all offer direct, three-and-a-half-hour flights from the UAE to the Jordanian capital Amman. Alternatively, from June Fly Dubai will offer a new direct service from Dubai to Aqaba in the south of the country. See the airlines’ respective sites for varying prices or search on reliable price-comparison site Skyscanner.
The trip
Jamie Lafferty was a guest of the Jordan Tourist Board. For more information on adventure tourism in Jordan see Visit Jordan. A number of new and established tour companies offer the chance to go caving, rock-climbing, canyoning, and mountaineering in Jordan. Prices vary depending on how many activities you want to do and how many days you plan to stay in the country. Among the leaders are Terhaal, who offer a two-day canyoning trip from Dh845 per person. If you really want to push your limits, contact the Stronger Team. For a more trek-focused trip, KE Adventure offers an eight-day trip from Dh5,300 per person.
The specs
Engine: 3.0-litre 6-cyl turbo
Power: 374hp at 5,500-6,500rpm
Torque: 500Nm from 1,900-5,000rpm
Transmission: 8-speed auto
Fuel consumption: 8.5L/100km
Price: from Dh285,000
On sale: from January 2022
Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
Company Profile
Name: Direct Debit System
Started: Sept 2017
Based: UAE with a subsidiary in the UK
Industry: FinTech
Funding: Undisclosed
Investors: Elaine Jones
Number of employees: 8
COMPANY PROFILE
Company: Eco Way
Started: December 2023
Founder: Ivan Kroshnyi
Based: Dubai, UAE
Industry: Electric vehicles
Investors: Bootstrapped with undisclosed funding. Looking to raise funds from outside
Top 10 most competitive economies
1. Singapore
2. Switzerland
3. Denmark
4. Ireland
5. Hong Kong
6. Sweden
7. UAE
8. Taiwan
9. Netherlands
10. Norway
COMPANY PROFILE
Company name: Klipit
Started: 2022
Founders: Venkat Reddy, Mohammed Al Bulooki, Bilal Merchant, Asif Ahmed, Ovais Merchant
Based: Dubai, UAE
Industry: Digital receipts, finance, blockchain
Funding: $4 million
Investors: Privately/self-funded
Last 10 NBA champions
2017: Golden State bt Cleveland 4-1
2016: Cleveland bt Golden State 4-3
2015: Golden State bt Cleveland 4-2
2014: San Antonio bt Miami 4-1
2013: Miami bt San Antonio 4-3
2012: Miami bt Oklahoma City 4-1
2011: Dallas bt Miami 4-2
2010: Los Angeles Lakers bt Boston 4-3
2009: Los Angeles Lakers bt Orlando 4-1
2008: Boston bt Los Angeles Lakers 4-2
Remaining fixtures
Third-place-play-off: Portugal v Mexico, 4pm on Sunday
Final: Chile v Germany, 10pm on Sunday
Company Profile
Founders: Tamara Hachem and Yazid Erman
Based: Dubai
Launched: September 2019
Sector: health technology
Stage: seed
Investors: Oman Technology Fund, angel investor and grants from Sharjah's Sheraa and Ma'an Abu Dhabi
How Tesla’s price correction has hit fund managers
Investing in disruptive technology can be a bumpy ride, as investors in Tesla were reminded on Friday, when its stock dropped 7.5 per cent in early trading to $575.
It recovered slightly but still ended the week 15 per cent lower and is down a third from its all-time high of $883 on January 26. The electric car maker’s market cap fell from $834 billion to about $567bn in that time, a drop of an astonishing $267bn, and a blow for those who bought Tesla stock late.
The collapse also hit fund managers that have gone big on Tesla, notably the UK-based Scottish Mortgage Investment Trust and Cathie Wood’s ARK Innovation ETF.
Tesla is the top holding in both funds, making up a hefty 10 per cent of total assets under management. Both funds have fallen by a quarter in the past month.
Matt Weller, global head of market research at GAIN Capital, recently warned that Tesla founder Elon Musk had “flown a bit too close to the sun”, after getting carried away by investing $1.5bn of the company’s money in Bitcoin.
He also predicted Tesla’s sales could struggle as traditional auto manufacturers ramp up electric car production, destroying its first mover advantage.
AJ Bell’s Russ Mould warns that many investors buy tech stocks when earnings forecasts are rising, almost regardless of valuation. “When it works, it really works. But when it goes wrong, elevated valuations leave little or no downside protection.”
A Tesla correction was probably baked in after last year’s astonishing share price surge, and many investors will see this as an opportunity to load up at a reduced price.
Dramatic swings are to be expected when investing in disruptive technology, as Ms Wood at ARK makes clear.
Every week, she sends subscribers a commentary listing “stocks in our strategies that have appreciated or dropped more than 15 per cent in a day” during the week.
Her latest commentary, issued on Friday, showed seven stocks displaying extreme volatility, led by ExOne, a leader in binder jetting 3D printing technology. It jumped 24 per cent, boosted by news that fellow 3D printing specialist Stratasys had beaten fourth-quarter revenues and earnings expectations, seen as good news for the sector.
By contrast, computational drug and material discovery company Schrödinger fell 27 per cent after quarterly and full-year results showed its core software sales and drug development pipeline slowing.
Despite that setback, Ms Wood remains positive, arguing that its “medicinal chemistry platform offers a powerful and unique view into chemical space”.
In her weekly video view, she remains bullish, stating that: “We are on the right side of change, and disruptive innovation is going to deliver exponential growth trajectories for many of our companies, in fact, most of them.”
Ms Wood remains committed to Tesla as she expects global electric car sales to compound at an average annual rate of 82 per cent for the next five years.
She said these are so “enormous that some people find them unbelievable”, and argues that this scepticism, especially among institutional investors, “festers” and creates a great opportunity for ARK.
Only you can decide whether you are a believer or a festering sceptic. If it’s the former, then buckle up.
How it works
Booklava works on a subscription model. On signing up you receive a free book as part of a 30-day-trial period, after which you pay US$9.99 (Dh36.70) per month to gain access to a library of books and discounts of up to 30 per cent on selected titles. You can cancel your subscription at any time. For more details go to www.booklava.com