Tuesday, Mar 14, 2017

Dubai: More than half of companies in the GCC have not started any preparations for the implementation of value added tax (VAT) that is expected to take effect from January 1, 2018, according to a survey.

Participants at a recent EY webcasts on GCC VAT, 50 per cent of the businesses surveyed reported that they have not started any preparations. With less than 10 months to go before the GCC VAT is implemented, 51 per cent of businesses reported that VAT compliance will be their main area of focus, while just 8 per cent of respondents said they would be concerned about procurement considerations, and 10 per cent reported they will look to address customer and vendor pricing as a priority.

“VAT will impact all key areas of business operations and it is imperative that businesses act immediately to avoid serious issues and costs,” said David Stevens, EY’s VAT Implementation Leader.

From the survey respondents only 13 per cent of businesses responded that they considered education and training of primary importance during VAT preparations.

“Global experience has shown that VAT training and education is fundamental to ensure successful VAT implementation. Business focus should be primarily on system and business process readiness, communication, staff training, and sourcing VAT knowledge internally or externally. Compliance with the requirements of the VAT law will follow if these areas are properly addressed,” said Stevens.

Business systems, from fully integrated ERP systems to stand-alone finance packages will often include standard VAT functionality. However, this is likely to require modification to capture specific GCC regulations. For larger organisations, configuring VAT in their ERP and finance systems will be resource intensive, potentially complex and expensive.

While getting ready within a tight schedule experts expect financial advisers, system specialists and solution providers are also likely to face resource issues, while attempting to support their customer base across the GCC region.

As for the multinational companies, the survey results showed 62 per cent said that their head office or parent company was not involved or only partially involved in their efforts to prepare for and implement appropriate system, process and organisational changes to accommodate the VAT regime from 1 January 2018. With the potential impact VAT could have on cash flows and business profitability if preparations are not handled properly, the GCC branches and subsidiaries of multinational companies need to ensure that their head office or parent company is well informed of the VAT developments.

Companies operating in the region need a clear and deep understanding of the VAT to prepare for the imminent introduction as announced by the GCC authorities. Companies need to be aware of the costs associated with the business changes required to successfully incorporate VAT into all their processes and make sure sufficient funding is budgeted for this purpose.

“Well-planned and effective change management will be critical to a company’s success in implementing VAT. Companies need to be concerned not just with their own readiness, but also that of suppliers and other external agencies — VAT is collected all along the supply chain and a failure along that chain will impact others,” said Stevens

Tax experts have warned that VAT comes at a cost and exposure to penalty if not administered correctly. Companies and traders who are consistently in a position of recovering VAT from the government will need to factor in the potential negative cash flow impacts that their business will be exposed to as well as the likely additional scrutiny their books and records will be subject to by the tax authorities.

By Babu Das Augustine Banking Editor

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