Dr. Sanjiv Agarwal, FCA, FCS

 Dr. Sanjiv Agarwal

Lets welcome yet another tax reform in the world in Gulf Countries. VAT is being introduced for the first time in Gulf countries as recommended by Gulf Cooperation Council (GCC).

Genesis

The GCC group of nations have historically worked together in designing and implementing new public policies as they recognize that such a collaborative approach is best for the region, therefore they framed a VAT agreement for all the member states.

GCC VAT AGREEMENT is a framework agreement signed by all six GCC countries:

  • Broad framework that mainly states provisions for intra GCC trade
  • Gives countries discretion to choose treatment in certain sectors where it does not affect intra-GCC trade
  • Mutual agreement on some provisions such as the standard rate of VAT and the registration threshold.

The countries covered under the agreement are:

  • Kingdom of Saudi Arabia
  • United Arab Emirates

> Abu Dhabi

> Ajman

> Sharjah

> Dubai

> Fujairah

> Ras Al Khaimah

> Umm Al Quwain

  • Kuwait
  • Qatar
  • Bahrain
  • Oman

This indirect tax (VAT) will be levied @ just 5 percent, as a single slab tax w.e.f. 1st January, 2018. While UAE and Kingdom of Saudi Arabia will levy VAT from January, 2018, other countries may have it by January, 2019.

Registration for VAT will commence prior to implementation date. In UAE, Registration has commenced w.e.f. 1.10.2017.

Applicability

VAT is an indirect tax on the consumption of goods and services not exempt from tax. It shall be charged and collected by a taxable person and remitted to the tax authority. A taxable person is a person, persons or entity that carries out an economic activity that requires them to be registered for VAT.

VAT is levied at each stage in the supply chain and is collected by businesses on behalf of the Government. VAT is ultimately incurred and paid by the end consumer.

VAT will provide these countries with a new source of income which will:

  • contribute to the continued provision of  high quality public services
  • help Government reducing dependence on oil and other hydrocarbons.

VAT in Gulf countries is much simpler than GST levied in India.

Tax laws

Three Federal laws as follows will be in force in UAE and KSA:

  • Executive Regulation of Federal Law on Tax Procedures
  • Federal Decree Law on Value Added Tax
  • Federal Decree Law on Excise Tax

Similar laws will be in force in other countries.

What businesses should do now?

Following actions output to be taken to prepare a business, accounting and reporting systems, staff, suppliers and customers for the new VAT regime:

  • Preparation of different scenarios for the application of VAT and cost of implementing the same.
  • Continually track policy development regarding VAT and update prepared scenarios
  • Understand the key areas of impact in business and plan for adversely affected areas.
  • Cash flow impact analysis as VAT is paid on an accrual basis
  • Analyze the capabilities of existing accounting systems to deal with VAT
  • Contract re engineering and documentation
  • Analyze and understand transitional issues.
  • Evaluate the impact of new tax on pricing of any supplies.
  • Plan for the training of existing staff and the recruitment of skilled resources/outsourced agencies
  • Prepare the implementation road map and align relevant teams
  • IT preparedness and software up gradation
  • Inventory management
  • Working capital reassessment and management
  • Due diligence of existing system and procedure

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