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Ready or not, here comes VAT
July 29, 2017, 3:46 pm
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With barely five months to go before VAT becomes a reality in the six-nation Gulf Cooperation Council (GCC) bloc, we look at how prepared businesses in the region are for this cataclysmic economic event that is slated to come into effect from January 2018.

A recent survey by Thomson Reuters, the global mass media and information firm, found that over three-quarters of GCC firms are not yet ready to face the implementation of VAT, with more than 75 percent firms saying they have not yet engaged with their tax advisors on the subject.

The study, conducted in collaboration with the Association of Chartered Certified Accountants (ACCA), the London-headquartered global professional accounting organization, also showed that the vast majority (88%) of respondent firms have not made budgetary provision for VAT, despite its likelihood of increasing costs for businesses and its potential to add at least two percentage points to inflation in 2018.

The survey of 330 company representatives across a range of industries, including financial services, oil and gas, manufacturing and retail,  revealed Gulf firms are woefully unprepared for the introduction of the five percent GCC-wide VAT from the start of 2018.

Among that vast majority who were unprepared for VAT, 16 percent said they had not thought about their VAT plans yet, 7 percent said they believed VAT would not impact them, and 68 percent said they had not made budgetary provision for VAT “because they were waiting for further clarity on the framework”.

The report also said there were many organizations in the GCC that still need to address the ‘VAT readiness’ of their technology platforms and tools. Only 29 percent of the companies surveyed had an IT platform in place capable of supporting VAT implementation, according to the report. Meanwhile, 18 percent of respondents had IT platforms that were only partially VAT-ready, and 8 percent said they were challenged by older legacy systems that do not support the ability to build VAT logic.

When asked how they plan to manage VAT, half of respondents said they plan to handle it in-house, by establishing an internal tax function; 36 percent planned to co-source by establishing an internal tax function and using an external tax advisor for certain processes and functions; and 13 percent said they planned to outsource their entire VAT reporting obligations to a VAT advisor.

Thomson Reuters and ACCA urged Gulf firms to take immediate steps to become more VAT-ready, including seeking professional tax advisors; allocating necessary budgets for VAT and its associated costs; understanding their VAT compliance requirements and legal obligations, and identifying potential IT system gaps for VAT implementation, and upgrading systems where necessary before January 2018. 

 

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