Gulf ready for VAT?

Thu 25th May 2017

As the six Arab Gulf states prepare for the launch of 5% VAT from 1 January 2018, many questions and concerns remain unaddressed.

Legal Delays

The principle concern is that no legislation has been published yet – although the GCC Unified VAT Framework Agreement has been published this month.  This risk will be compounded by the differing complexities in the six states of passing their own eventual VAT bills before year end.

IT upgrades

This means companies are unable to fully prepare changes to their ERPs, retail and supply chain processes.  IT system upgrades and the implementation of tax engines is typically the major component of VAT introductions in new states.

Varying VAT rates and rules across the states

Whilst there has been agreement on the 5% standard VAT rate by all the states, variations on the application of nil and reduced rates for varying goods or services has been permitted.  This includes on foods and financial services.  Again, this adds to the complexities for businesses trading across state lines and ensuring their systems can cope.

Lack of public education

There are also been a dearth of education programmes for businesses and the general public.  This may lead to a lack of preparedness.  In particular, the transition rules have not been published, which will present extra difficulties with goods moving through supply chains and service contracts spanning the implementation dates.

Contract updates threaten VAT cash losses

Businesses have so far been unable to fully assess the implications of the VAT launch on their existing trading contracts.  These will not cover the liability, reporting and other issues involved for VAT.  If contracts are fixed-price, it may be difficult to negotiate VAT liabilities.



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