GCC businesses aren't prepared for VAT

The falling price of oil is not good for GCC economies, but this can’t be any real surprise? The question now is how this problem is going to be resolved in a region where there has been little attempt to diversify the economies?

Dubai, which has never been an oil-producing emirate, started to diversify earlier than other countries in the region. In this respect, the emirate has been very successful. Logistics is now the driving force behind the Dubai economy; tourism is probably number two. However, the emirate is still dependent on Abu Dhabi for its oil revenue.

Since the region’s budgets are predicated on a barrel of crude oil being USD 80 a barrel and the current price of WTI crude oil is only USD 46.54, it’s time that these economies really did diversify.

And the introduction of Value Added Tax (VAT) is going to happen, finally. It should be at a rate of five per cent across the region. In the UAE, it was meant to happen by 2010 along with the GCC monetary union;  neither happened. I wrote about introducing VAT in  2006, when I was writing for a national newspaper, Khaleej Times. This is what I wrote:

“If the UAE is to diversify its sources of income, the introduction of a taxation system is important. According to the report [by HC Securities] a Value Added Tax (VAT) will be introduced by the end of the decade with the implementation of the GCC monetary union by 2010. In line with IMF recommendations, the introduction of property taxes and corporate tax on all sectors is also expected.

"If these taxes are not introduced, the fiscal surplus might be short-lived," says the report. Tax revenue represented only six per cent of total revenue in 2005.

The importance of the hydrocarbon sector to total revenues and the fate of the budget deficit/surplus cannot be ignored, however. When excluding oil revenue the 7.8 per cent of GDP surplus turns into a deficit of 15.1 per cent of GDP, the HC report states.

In its scenario work, in which HC Securities factors in a greater level of government spending, it anticipates that "the budget surplus to be eradicated in 2007". However, the report also states: "Although we question the ability of sustaining a budget surplus amid rising spending on development, it is not worrisome as it will positively affect the situation in the future. A bulk of the revenue, generated from government-owned foreign assets is not recorded on its books, which in reality raises the total revenues figure."

Even if the decision making as to when VAT should be introduced has dragged on, GCC businesses are not prepared for its introduction.

 Wednesday, July 12, 2017

GCC Businesses are still not prepared for VAT Implementation finds new survey

With less than six months until the GCC implements value added tax (VAT), a new survey from ACCA (the Association of Chartered Certified Accountants) and Thomson Reuters has found that there is a significant lack of preparation and awareness among businesses in the region of how it will affect them.

The report, Are GCC businesses equipped for VAT?, has found that only 11% of respondents understand the impact that VAT implementation will have on their business, whilst 49% are yet to commence their impact assessment.

The report has also raised concerns about the advice and expertise available for businesses, with regional regulatory differences likely to test their finance and IT capabilities.

More than one third (38%) said they lacked in-house resources, whilst 44% described their resources as ‘limited.’

Meanwhile, 88% of organisations surveyed said they had not made any budget provisions for VAT in 2017 ahead of its implementation. Only one quarter (25%) said they had engaged with their tax advisor on the subject of VAT.

Responding to the report, Chas Roy-Chowdhury, Head of Taxation at ACCA, said,

The lack of preparation is a concern; companies should be using the pre-implementation period wisely to understand compliance, legal obligations and the financial risk associated with VAT. While the overwhelming majority realise it will affect their business, only a minority have a clear plan of how to effectively manage such a significant fiscal reform.

Tax advisors and professional accountants connected to the region have been working hard to understand the changes and help businesses navigate the transition successfully. This process needs to start now, otherwise companies could risk fines and avoidable regulatory burden.

Businesses in the GCC should urgently seek out the guidance of tax advisors and create a roadmap to make themselves VAT ready for 2018.

Pierre Arman, Market Development Lead for Tax & Accounting at Thomson Reuters said,

The introduction of VAT will introduce new revenue streams for government, encourage foreign investment and aid the diversification of the economy.

Yet its introduction should be seen as an organisation-wide challenge: it should not be left to finance and IT functions to manage overnight. Companies should also not wait until the laws and regulations are finalised to start the process; much of the preparation should be done already.

We hope this survey goes some way to informing businesses across the GCC about what they need to do to be VAT compliant, given we have only six months to go before the implementation date.

Over 330 people participated in the Thomson Reuters and ACCA VAT Readiness Survey from across the GCC region. The respondents were from a diverse range of industries including financial services, oil and gas, manufacturing and retail.

You can read the full Thomson Reuters and ACCA VAT Readiness Survey report here http://onesource.tax.thomsonreuters