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VAT to be implemented in GCC from 1 January, 2018

by Kim Kemp on Mar 29, 2016

It has been confirmed that VAT will be implemented in the GCC from 1 January 2018
It has been confirmed that VAT will be implemented in the GCC from 1 January 2018

Gulf companies have been advised to plan ahead of the anticipated VAT implementation.

Ernst & Young Qatar (EY) and PricewaterhouseCoopers (PwC), two leading audit and consulting firms, have advised business in the GCC to start planning in advance for the implementation of value added tax (VAT) which is expected to be implemented from January 2018.

On 28 March, EY held a seminar on the implementation of the planned VAT policy in Qatar, which represents a significant change in tax policy and will have a major effect on businesses across the GCC.

While the implementation is still more than 18 months away, businesses should already be thinking about how VAT will impact on their operational models.

Although the general shape of the tax is already known, the final form of the VAT is still being developed and GCC Government officials have confirmed that the go live-date is January 1, 2018.

All GCC members should have VAT in place by the end of 2018, The Peninsula reported.

Finbarr Sexton MENA indirect tax leader, EY, outlined that VAT will have a broad impact and it will diversify government revenue sources and reduce reliance on oil revenues to finance government expenditures.

“The timelines for businesses to build out the VAT capability is challenging (as) it requires careful planning and a structured programme to ensure that the business is VAT ready, including people, processes, controls and technology.

“Corporate structures and supply chains also need to be analysed in light of the new tax … to ensure that potential inefficiencies can be detected and addressed in a proactive manner,” he added.

Finbarr also cautioned: “If VAT is not applied correctly, it may become an additional cost to the business” and added: “Further, non-compliance with tax laws attract severe penalties.

“All businesses must undertake a review of their current contracts to determine if VAT has been appropriately addressed,” he said.

PwC also held a VAT workshop in Qatar, as part of a region-wide initiative to update locally-based businesses on the newest advances and the consequences of VAT introduction in the region.

PwC also noted that the tax system will present a number of challenges for businesses and individuals operating in these States and the tax experts from PwC’s Qatar office and from across the region, outlined that there are practical methods companies can start formulating now – by evaluating how VAT will impact them.

The PwC tax workshop defined the VAT impact on businesses and how developing a strategy for implementation and identifying contracts that require VAT action are all necessary steps to preparing for the introduction of the system.

Also summarised was the high importance of undertaking a capability assessment of the existing systems to manage VAT.

Jeanine Daou, PwC Middle East partner and indirect taxes and fiscal policy leader said: “An understandable question we often receive is ‘what steps should be undertaken now, when the legislation is yet to be issued?’

“Three good areas to focus on are 1) Modelling what could be the business impacts, 2) Understanding the IT systems and business processes that will be affected by VAT as part of shaping the VAT implementation project and 3) Review existing contracts that do not accommodate the introduction of a new tax.

“On the latter point, companies may be forced to absorb the impact of VAT if the contracts are not amended