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VAT to introduce transparency, industry leaders say

by Rajiv Ravindran Pillai on Jan 8, 2018


Talking about the specifics of VAT implications on the different sectors, Sam Emery, finance director at UAE-based facilities management company Emrill, said: “The implications are expected to be the same for the majority of sectors with some differences within certain specialist industries such as the real estate and financial services sectors.

Essentially an additional 5% VAT charge (with specific rules subject to announcement by the Ministry of Finance) will be applied by businesses on all goods and services sold (except where zero-rated or exempt).

“General implications for businesses may include an additional administrative burden on staff, stress on working capital as a result of little or no prior cash flow planning, and lack of understanding as a result of no training or investment in education. This could lead to incomplete VAT returns ultimately resulting in fines and penalties.”

All companies will have an initial period of adapting to the new requirements, Emery said. “Some companies will find it easier than others depending on the complexity and volume of transactions, and the competency levels of existing accounting staff. In the short term, problems may arise from the lack of understanding of applicable transactions, additional administrative requirements, and the introduction of new modules within the finance system. In addition, some companies could experience cash flow issues, as VAT payments need to be made on time in order to avoid fines and penalties.

“On the other hand, if companies spend time in the planning phase, then over the long term they can benefit from overall process efficiencies including effective documentation control and a more effective approach to cash-flow planning, albeit forced on them by the new tax regulations.”

However, contrary to the belief that VAT will introduce transparency, according to John Voyez of accountancy firm Smith and Williamson, fraud will be one of the big issues tax authorities in the UAE will have to deal with.

Voyez said: “I would unfortunately suggest that there is maybe going to be a lot of fraud about, because you'll find that a lot of people will make up a VAT number, issue an invoice with an extra 5% attached and not account for the VAT to the tax authorities.”

Voyez was speaking at the Excellence in Construction summit at The Big 5 tradeshow. He said that there will be compliance issues in the year 2018.

Fabio Sbacches, MEP manager and project manager at LC & Partners Engineering Consultants, however said that VAT won’t affect anything in this region. He added: “Only the client will be affected. Because all the companies will take the 5% and pass it on to the subcontractor. In Europe and US, VAT has been there and it is not causing any problems to companies.”