An Overview of FTA Audit, Penalties, and Recent Clarifications

In this session, the Indirect Tax Experts capture an overview of different aspects of the FTA (Federal Tax Authority) Audit and deliver insights on the recent clarifications issued so that the taxpayers are better equipped and in compliance with the laws for the audit.

Ankit Nagda – Manager, Indirect Tax, Nexdigm, highlights the key constituents of the FTA Audit File (FAF). He highlights how important it is for the company to obtain the FAF. Once the request is received, certain elements are required during an audit, which is discussed in-depth.

It covers the common audit issues faced globally, along with the road ahead and the importance of having a policy to justify the taxpayer’s claim. It creates a significant impact when the audit is well planned instead of the last moment, which is construed by the tax authorities as unethical and raises suspicion.

The session further explains the key violations that are the cause of an FTA audit and what are the recently implemented revisions. It talks about the penalties used to be in the past, the revisions, and what Nexdigm’s views are on these changes.

One key takeaway here is that the penalties levied for submission of the Voluntary Disclosure (VD) after receiving an FTA audit notification are similar to the penalties levied for submission of the VD before receiving an FTA audit notification. The only difference is the variable penalty of the latter is higher. It is financially beneficial to submit the VD only after receiving the FTA audit notification.

Subsequently, they discuss the various other penalty revisions that have been made, along with the introduction of the Amnesty Scheme. This Scheme has been extremely welcoming for the taxpayers as it offers a benefit of 70% of the penalties being waived off as long as certain conditions are met.

The next segment of the webinar began with Saket Patawari - Executive Director, Nexdigm, stating that the purpose of the penalties was to create long-term tax compliance within the country. Since this is a new shift, there must be a strong driver that enables the people to comply.

He further discusses the various factors that support the UAE taxpayers, one of which is the FAF. The FAF serves as a mock audit and helps evaluate the multiple challenges and the best plan of action to take when considering a voluntary disclosure.

Saket then interestingly points out that the data dramatically reduces the penalties. He then explains what this drop in penalties means from the tax authorities’ point of view.

A question was posed to the panel asking whether any penalties would be applicable on a VD submitted before receiving an FTA audit notification if the filing for the tax was done before the due date. To this, Ankit mentioned that further clarification is needed for such a situation, and there is likely to be an option for such a revision before the deadline in the near future.

After a quickfire question and answer round, the webinar concluded by mentioning how simple and important it is to comply with all the rules and regulations, as there is a good amount of time provided to the taxpayers every quarter, and the trust that the tax authority is looking to build. It is crucial to note, that compliance offers protection from the various financial implications that could negatively impact any business.