In the backdrop of COVID-19, the UAE Cabinet has decided to provide reduction in VAT and Excise tax penalties for those who still have dues pending. This is viewed as a move which will enable taxpayers to have a better start.

The Cabinet decision, referred to as Cabinet Decision 49/ 2021, reduces penalties to 30 per cent, provided they settle their dues by December 2021. The penalty for late payment has been reduced to 4 per cent a month from 1 per cent a day. However, the upper limit shall be at 300 per cent. The new decision applies for a period of 60 days starting from April 28, 2021.

The new resolution amends the law on penalties which can be imposed by the Federal Tax Authority (FTA) for non-compliance, as per Cabinet Decision 40 of 2017. While 2 per cent penalty on the day following due date of tax payment remains the same, the 4 per cent penalty due on the seventh day from the payment due date following the due date for payment and the 1 per cent per day penalty starting from one month after payment due date, has been brought down as one single 4 per cent penalty applicable monthly.

Furthermore, the penalties attached to violations in Voluntary Disclosure requirements have also been brought down significantly, from 3000 AED for the first time and 5000 AED on repeat offence, to 1000 AED for the first time and 2000 AED on repeat offence. The percentage based penalties attached to these offences have also been brought down. Moreover, there has been substantial reduction in penalties that entail other offenses such as failure to keep records, failure to submit registration request, displaying prices including tax, and so on.