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Qatar and GCC face VAT implementation challenges

With the implementation of VAT throughout the GCC due for 2018, the region faces challenges around a lack of certainty relating to the approval and release of the GCC VAT Framework Agreement

The region faces challenges around a lack of certainty relating to the approval and release of the GCC VAT Framework Agreement
The region faces challenges around a lack of certainty relating to the approval and release of the GCC VAT Framework Agreement

Value added tax (VAT) is due to roll out across the Gulf region by 2018, but the relevant States are ill-equipped to handle the implementation.

With barely one year left for VAT implementation, the GCC countries face a number of challenges, The Peninsula reported.

The implementation of VAT is at a risk of delay against the original intended date of January 2018, owing to a lack of certainty relating to the approval and release of the GCC VAT Framework Agreement, said Craig Richardson, partner and head of Tax and Corporate Services at KPMG in Qatar.

He added that there is also a lack of domestic legislation in place.

As a tax on consumption of goods and services charged at each stage in the supply chain and billed ultimately by the consumer, the introduction of VAT is expected to be 5%.

This however forms part of wider development reforms, as outlined by various GCC member States.

Over the past few months, the Gulf States have held regular discussions to formulate and settle the main principles under which VAT should be implemented, and are expected to ratify the VAT Framework Agreement soon this year.

Once ratified, each country can issue domestic legislation to implement VAT, including Qatar.

With the present absence of VAT legislation however, the corporate sector has less time to prepare and member states cannot conclude their national VAT laws until they finalise 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.

Businesses will need suitable systems and a capable workforce to collect VAT and pay it to the tax authorities on a monthly or quarterly basis.

Although VAT will impact all businesses in Qatar, either directly or indirectly, it will have a neutral impact if managed effectively.

Richardson advised that companies should review their procurement procedures, operational models and systems, contracts and legal structure today, to be VAT ready and minimise the impact of this imminent change.

He said that businesses must plan and analyse their products and services for the impact of VAT and also explained that the impact would also extend to the government sector and that the system requires monthly or quarterly filing of returns and payments of taxes.

He pointed out that the tax authorities will also need to process regular refunds 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.” Richardson added.

However, the Qatar consumer may be due to suffer a double blow as in June last year, Qatar’s government warned of additional taxes over and above VAT, as the country sought to reduce spending and prepare itself to run budget deficits for the next three years.

While the Ministry of Development Planning and Statistics (MDPS) confirmed for the first time that Qatar will introduce a 5% VAT in 2018, it added: “The possibility of new taxes, such as a ‘sin tax’ (on items deemed harmful to individuals, like tobacco, fast foods, and soft drinks), and the introduction of the VAT in 2018 will nudge up Qatar’s consumer price inflation.”

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