Tax evasion or fraud refers to a case where a taxable person intentionally defrauds to pay less tax or no tax to the FTA that is lawfully due to him. With tax evasion, the taxpayer intentionally and deliberately misrepresents the tax liability to avoid paying higher taxes to the government. The government loses money as a result of this act. Therefore, the law imposes severe penalties to such taxable persons. The tax fraud necessarily includes an intention to not pay the tax. The FTA has to prove through fraud examination tests or techniques that the person held for tax evasion or fraud has been intentionally involved in this act.fraud

1. (1/4)
VAT Evasion or Fraud:
Penalties & Precautions
Ahmad Tariq Bhatti, FCMA, CGMA
Since the law has not differentiated the tax evasion and tax fraud, therefore, it is up to
the authority to decide what kind of seriousness of the fault is found in the calculation of
the tax liability of a taxable person?
The tax evader or tax fraudster has the following consequences if proven guilty by the
tax authority:
1. Loss of reputation and goodwill with the government
2. Administrative penalties may be imposed on such a person
3. Criminal penalties may be imposed on such a person
4. Can be imprisoned
The tax evasion happens through overstating input tax and understating output tax. The
net tax liability is reduced to a minimum amount through this process. The FTA fraud
examiners are properly equipped with such procedures that allow them to find the exact
reasons and methods of tax-evading or making a tax fraud.
Tax evasion or fraud refers to a case
where a taxable person intentionally
defrauds to pay less tax or no tax to the
FTA that is lawfully due to him. With tax
evasion, the taxpayer intentionally and
deliberately misrepresents the tax liability
to avoid paying higher taxes to the
government. The government loses
money as a result of this act. Therefore,
the law imposes severe penalties to such
taxable persons. The tax fraud
necessarily includes an intention to not
pay the tax. The FTA has to prove
through fraud examination tests or
techniques that the person held for tax
evasion or fraud has been intentionally
involved in this act.

2. (2/4)
For example, a few examination tests or techniques are outlined hereunder:
1. Check that the output invoice is system generated and is made as per the
specifications of the VAT law
2. Ensure all customers are charged VAT and are properly accounted for
3. Make sure that the company under investigation prepares quarterly or monthly
reconciliation of revenues as per G/L with the returns submitted at the FTA. The
reconciliation provides the linking of total revenues with the vatable revenues.
Monthly or quarterly reconciliation depends if the company is submitting its VAT
returns monthly or quarterly.
4. In case a customer refuses to pay VAT, has the company informed the FTA
about this fact or it is revealed during the fraud examination or investigation?
5. Check the completeness and integrity of the supplier invoices
6. Ensure tax invoice sent by the suppliers are system generated
7. Ensure the supplier invoice is generated from a system that is linked to the
accounting information system.
8. Check the supplier receipt is as per the requirements of the law
9. Make sure the supplier has a physical location, visit their premises to ensure the
physical existence of the supplier office
10.Check the corporate existence of the supplier by checking their trade license,
Chamber of Commerce Certificate, rent agreement, utility bills and signboard
outside the office.
11.Ensure the supplier is doing the same business for which he has issued an
invoice to the company that is under fraud examination by the FTA
Symptoms of Tax Fraud or Tax Evasion
 Concealing or understating income
 Overstating purchases to have more input recovery from the authority
 Multiple invoices for the same transaction with a customer
 Inadequate record-keeping
 Failure to cooperate with the authority
 Creating false or incorrect receipts
 Altering cheques
 Falsifying of supporting documents
 Unable to provide original documents when requested
 The artificial separation of amounts
 Unable to reconcile taxable revenues with the book revenues
 Unable to prove the physical movement of goods purchased with the one
reported in tax records
 Inordinate delay in the provision of documents requested by the FTA examiners
or auditors

3. (3/4)
Consequences of Tax Fraud or Tax Evasion
The authority is empowered to impose
administrative penalties after the
assessments are completed against a
taxable person. In case the taxable
person is found guilty of tax fraud or
evasion, the authority will apply the
Administrative Procedure Law on it.
The authority will notify the company of
such an act of evasion or fraud within 5
business days under the violation of an
administrative procedure as listed in
Article 25 of the Tax Procedure Law.
Administrative penalties are imposed in the following cases:
 A taxable person fails to keep the required tax records,
 A taxable person fails to submit data, records and documents related to tax in
Arabic to the authority when requested,
 The taxable person fails to inform the authority of any circumstance that
requires an adjustment of the information about his tax record kept by the
FTA;
Such administrative assessments carry specific administrative penalties in respect of
each violation, which shall be no less than AED 500, but shall not exceed three
times the amount of tax due in respect of which the administrative penalty was
levied. (Article 25 (3) of the Tax Procedure Law);
Article 76 of the VAT Law sets out the position regarding Administrative Penalties
Assessments:
 The failure of the taxable person to submit a registration application within the
time frame specified in the Tax Law – AED 20,000.
 The failure of the person conducting business to submit the data, records and
documents related to tax in Arabic to the authority when requested AED
20,000.
 The failure of the Registrant to inform the authority of any circumstance that
requires the amendment of the information about his tax record kept by the
authority AED 5,000 for the first time AED 15,000 in case of repetition.
 The failure of the registrant to submit the tax return within the time frame
specified in the Tax Law – AED 1,000 for the first time, AED 2,000 in case of
repetition within 24 months.

4. (4/4)
In addition to the administrative penalties, the authority can impose a tax evasion
penalty:
 in the form of a prison sentence,
 a monetary penalty (not exceeding 5 times the amounts of tax evaded) or
 a combination of the two,
for the following instances, when:
1. A taxable person deliberately fails to settle any payable tax or
administrative penalties;
2. A taxable person deliberately understates the actual value of his business
or fails to consolidate his related businesses with the intent of remaining
below the required registration threshold;
3. A person charges and collects amounts from his clients claiming them to
be taxed without being registered;
4. A person deliberately provides false information, data and incorrect
documents to the authority;
5. A person deliberately conceals or destroys documents or other material
that he is required to keep and provide to the authority;
6. A person deliberately steals, misuses, or causes the destruction of
documents or other materials that are in the possession of the authority;
7. A person prevents or hinders the authority’s employees from performing
their duties; or
8. A person deliberately decreases the payable tax through tax evasion or
conspiring to evade tax.
The competent court shall impose the said tax evasion penalties against other
persons who were directly involved or instrumental to the carrying out of any of the
listed tax evasion, provided that the authority has proved such direct involvement.
Any person who is proven to have been directly involved or instrumental in Tax
Evasion under Article 26 (3) shall be jointly and severally liable with the Person
whom he has assisted, to pay the Payable Tax and Administrative Penalties. [Article
26 (3) & (4) of the Tax Procedure Law]
Article 26 (3) of the Tax Procedure Law indicates that – the competent court shall
impose tax evasion penalties against any person who is proven to have been
directly involved or instrumental in tax evasion.
Article 26 (4) of the Tax Procedure Law says that without prejudice to Article 26 (2)
of this Law, any person who is proven to have been directly involved or instrumental
in tax evasion under Article 26 (3) shall be jointly and severally liable with the person
whom he has assisted, to pay the tax liability and administrative penalties under this
Law or any other Tax Law.