EXPERT SPEAK
Preparing your
systems for VAT
Most businesses by now should be working
with a trusted partner to prepare their
financial systems for GCC VAT explains Aaron
White from Sage.
Aaron White, Regional Director for Sage Middle East.
O
n 1 January 2018, value-added tax will come into effect
for the first time in United Arab Emirates. Naturally,
small businesses are concerned about the financial and
operational impacts of VAT compliance, especially since they are
used to operating in a low-tax business environment.
While there will be implications for systems, infrastructure,
skills and training, there are a number of benefits to the new tax
system on businesses and the economy.
For decades, the economies of the GCC countries have
benefitted from high oil prices. However, a drop in demand,
increased global competition, and a substantial decrease in the
price of crude oil per barrel, has forced GCC countries to look for
other sources of revenue to diversify their economies and remain
globally competitive. VAT is one such revenue source.
VAT is a tax on the consumption of goods and services and
has been set at 5% across GCC countries. This rate is among the
52
lowest in the world, with some countries charging VAT of more
than 20%.
VAT is levied at each stage of the supply chain, from the
manufacturer, to the wholesaler, to the retailer, taxing the value
added by businesses at each point in the chain. For example, raw
cotton becomes more valuable as it moves along the supply chain
to eventually be manufactured into a T-shirt, or the end-product.
Certain sectors will be exempt from paying VAT, such as
healthcare, education, certain foods, some type of real estate
transactions and local transport, but these may differ between
member countries. Export of goods outside the GCC will be zero-
rated, which means exporters can claim a tax refund.
VAT is an efficient and transparent way for governments to
increase revenue. The IMF predicts that GCC states can boost
GDP by 1.5% with the implementation of VAT. This will help GCC
states to diversify their economies away from oil and to continue
delivering on their public service mandates.
The important thing to note is that VAT is not a business
expense but a cost that is ultimately passed on to the end-
consumer when they buy a product. Businesses act as the
collection agents, collecting the tax on behalf of the government.
In this way, they are helping to make the economy more
prosperous and efficient.
However, there will likely be indirect costs associated with
becoming compliant, which will affect many areas of your
business, including pricing, cashflow, financial reporting, tax
accounting, supply chain and compliance processes.
Businesses that need to be VAT compliant should work
through a detailed impact assessment with a trusted business
partner to guide them through the implementation and operations
phases. An effective VAT system relies on shared responsibility
between governments, businesses and consumers. The additional
revenue will go a long way to maintaining effective public services
and positioning GCC countries as globally competitive nations
with truly diversified economies.
While it may be daunting initially, preparing your systems
for VAT collection and payment to governments need not be a
massive or expensive undertaking. More than 150 countries have
VAT systems in place - by partnering with a solution provider that
has experience in these markets, you will be taking a smart first
step to becoming compliant. Malaysia was the most recent nation
to implement VAT.
Businesses that need to
be VAT compliant should
work through a detailed
impact assessment with a
trusted business partner.
Issue 11
INTELLIGENT TECH CHANNELS