The adoption of VAT by the GCC countries represents a “major shift” in tax policy that will impact all segments of the economy and lead to a fundamental change in the way businesses operate across the region, it said.
“The expected VAT laws are not business as usual and may require several months for companies to successfully integrate VAT functionality into their systems. It is a unique and transformative time for the region and we are keen to ensure that clients have access to the tools to derive VAT best practices tailored to their needs," EY said.
While the introduction of a tax may seem daunting to consumers and businesses alike, the overall impact for consumers is less than the usual annual inflation rate, said David Stevens, the newly appointed VAT implementation leader at EY.
"As businesses prepare to implement VAT across numerous sectors, they will need to invest in analysing, redesigning, developing and implementing updated systems, processes, contracts and business arrangements to match the requirements of the new tax system," he said.
All GCC countries are working towards VAT implementation by January 1, 2018 to avoid transaction and sales issues that could arise from intra-GCC trade. Businesses that are not ready by the VAT go-live date may suffer fiscal consequences from the inability to pass on the underlying VAT to the end customer.
"The priority for companies at the moment should be to secure the right accounting and IT talents that have previous VAT experience. As this is a new scheme, there is a limited pool of expertise that all GCC businesses are recruiting from," he said.
Additionally, the GCC ministries are building their tax administration systems almost from scratch and will require expansive teams to first develop the processes, and then monitor compliance after January 1, 2018, according to Stevens.
Low taxation and the ‘new normal’ of the oil, which has been depressed since 2014, have forced the GCC to find new revenue streams like VAT, Dr Nasser Saidi, a former chief economist of the Dubai International Financial Center, had earlier said.
"GCC-owned companies may be particularly affected by VAT, as many will be required to account for tax for the first time," Paul Karamanoukian, Tax Partner, EY Qatar, had said, adding policymakers also faces challenges, not least the need to establish an effective VAT administration and to balance this against addressing business concerns.
While the introduction of a tax may seem daunting to consumers and businesses alike, the overall impact for consumers is less than the usual annual inflation rate, says David Stevens
The value added tax (VAT), proposed to be introduced from 2018, is expected to generate revenues in excess of $25bn a year in the Gulf Cooperation Council (GCC), according to Ernst & Young (EY).
