Most GCC firms not yet ready to implement VAT, says EY
March 14 2017 10:25 PM
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A woman passes a store in a shopping mall in Dubai. In a survey of over 500 participants representing businesses operating in the GCC region, Ernst and Young found that 50% of them have not started any preparations to implement VAT and only 29% have studied some of the new VAT provisions.

With the Gulf Cooperation Council (GCC) -wide value added tax (VAT) set to take effect from next year, Ernst and Young (EY) said a vast majority (62%) of transnational companies’ head offices have not yet been involved, or are only partially involved, in preparing for and implementing an appropriate system, process and organisational changes to accommodate the new tax regime.
“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 would be advised to ensure that their head office or parent company is well-informed of the VAT developments, the likely consequences and the implementation measures that are necessary,” EY said.
In a survey of over 500 participants representing businesses operating in the GCC region, the global consultant also found that 50% of them have not started any preparations and only 29% have studied some of the new VAT provisions.
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, it said, adding a well-planned and effective change management would be critical to a company’s successful implementation of VAT.
The standard VAT rate would be 5% unless a zero rate or exemption applies with the member countries having the right to such privileges on sectors such as education, health, real estate and local transport. The other key features of the VAT regime are the individual countries’ right to subject the oil sector, petroleum derivatives and gas as well as certain food products to a zero rate of VAT. The export of goods to jurisdictions outside of the GCC would also be subject to a zero rate of VAT.
EY said companies need to be concerned not just with their own readiness, but also that of suppliers and other external agencies since VAT is collected all along the supply chain and a failure along that chain would impact others.
Although consumers ultimately bear the tax, businesses would have the administrative responsibility of being the government’s VAT collection agent along the supply chain, it said, adding “this 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 — if they export or make zero-rated supplies — need to factor in the potential negative cash flow impacts that their business would be exposed to as well as the likely additional scrutiny their books and records would be subject to by the tax authorities.
Finding that only 11% of the respondents considered changes needed to their ERP (enterprise resource planning) system in the wake of VAT, which is expected to be in place from January 1, 2018, EY said for larger organisations, configuring VAT in their ERP and finance systems would be resource-intensive, potentially complex and expensive.
“Financial advisors, system specialists and solution providers are also likely to have resourcing issues, while attempting to support their customer base across the GCC region,” it said.






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