DUBAI: Federal Tax Authority (FTA) on Monday specified the conditions under which the Value Added Tax (VAT) will be applicable to the telecommunications sector and how is it collected from users in cooperation with operators at the beginning of next year.

In the telecom sector, for postpaid services, 5 per cent of the total amount of the invoice charged to users. For prepaid services. VAT will be calculated at 5 per cent upon purchase of a new SIM after January 1, 2018. “However, as for recharge cards, the tax will not be applied to the face value of the recharge; but 5 per cent VAT will be will be applied to prices of the services used by the user from the recharged amount,” TRA clarified.

As of January 1, 2018, price of services in the UAE’s telecom sector will be inclusive of VAT. This does not apply to telecom services to which VAT is not applicable, for example, international roaming services.

According to the FTA, VAT is a tax on the consumption or use of goods and services levied at points of sale in the UAE, including telecom sector. VAT is levied at each stage of the “supply chain”.

In general, the final consumer is the one who bears the cost of this tax, while businesses (including telecom companies) collect and calculate the tax, as a tax collector for the FTA. The 5 per cent VAT will be will be effective as of January 1, 2018.

As far as VAT is concerned, the role of telecom companies in the UAE, like all other businesses, is to collect VAT for the FTA. The core role of the TRA is to ensure that telecom companies comply with the law by implementation of VAT.