VAT implementation in the GCC: key challenges facing businesses and authorities

Key challenges facing businesses and authorities

A number of challenges are before the Gulf Cooperation Council (GCC) countries to meet the deadline for introducing value added tax (VAT).

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Craig

A number of challenges are before the Gulf Cooperation Council (GCC) countries to meet the deadline for introducing value added tax (VAT). Craig Richardson, Partner and Head of Tax and Corporate Services at KPMG in Qatar,explained that the current lack of certainty pertaining to the ratification and release of the GCC VAT Framework Agreement, as well as the lack of domestic legislation puts the implementation of VAT at a risk of delay against the original intended date of January 2018. 

VAT is a tax on consumption of goods and services levied at each stage in the supply chain and payable ultimately by the consumer. As outlined by various member states, GCC countries will introduce VAT at an expected rate of 5% as part of wider development reforms. GCC countries have had regular discussions over the last several months to formulate and finalize the main principles under which VAT should be implemented; GCC countries are expected to ratify the VAT Framework Agreement soon this year.  Once the agreement is ratified, each country can issue its’ own domestic legislation to implement VAT, including Qatar.

However, the current absence of VAT legislation gives the corporate sector less time to prepare. Member states cannot finalize their national VAT laws until they finalize and adopt the GCC VAT Framework Agreement. “If Qatar plans to implement VAT starting from January 2018, following the steps of the other GCC member states, the corporate sector needs the national law at least eight months prior to the implementation to prepare for the new tax”, Richardson added.

Although VAT will impact all businesses in Qatar, either directly or indirectly, it will have a neutral impact if managed effectively. Businesses will need appropriate systems and a qualified workforce to collect VAT and pay it to the tax authorities on a monthly or quarterly basis. Therefore, companies should review their procurement processes, operating models and systems, contracts and legal structure today, to be VAT ready and minimize the impact of this imminent change.

Richardson elaborated, “The first step businesses must make is to plan and analyze their products and services for the impact of VAT. VAT is happening and if businesses are to maintain profitability, they must invest in understanding the impact of VAT on their business from an operational point of view. Before implementation, businesses can build and test systems and processes to help them comply with legislation and embed these within existing processes. There are also immediate measures which businesses can take today to avoid the impact of VAT, for example making any planned significant investments in business infrastructure and assets before implementation begins.”

Richardson also explained that the impact of VAT would also extend to the government sector. VAT requires monthly or quarterly filing of returns and payments of taxes. The tax authorities will also need to process refunds regularly and have robust IT systems in place to facilitate e-filing and e-communication with taxpayers.

“Since VAT is a new concept to the region, businesses and tax authorities in each GCC country will have to recruit and train sufficient staff.  In addition, governance frameworks may also need to be reviewed and updated to incorporate policies, processes and controls that comply with VAT legislation.” He added. 

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