The VAT structure, signed by all 6 GCC countries last month, will replicate the European Union style common market framework and will specify items and services on which VAT will be levied.
80% of domestic VAT legislation in individual member countries will follow the agreed framework while the remaining 20% will be at the discretion of member states, the accounting firm revealed in a statement.
“We can expect the GCC framework to be made public within the next week to 10 days. This is the first time a major indirect tax is being charged on the country ever since customs duty was imposed,” Alkesh Joshi, Director of Tax at EY said.
“We have seen most countries dropping direct taxes and replacing them with indirect taxes, which have shown a significant rise.”
Oman is expected to announce domestic VAT legislation around the same time - as early as next week. VAT is levied on every transaction made by a company and can take six to 12 months for a large corporation to prepare VAT infrastructure. It is expected to contribute nearly 1.4% of GDP – an estimated $1.1 billion every year. Essential food items, services such as hospitals, and education are expected to be either zero rated or exempted in the framework.
Meanwhile, Joshi said that it is high time for companies to prepare for VAT while highlighting an EY VAT readiness survey which revealed that 50% of companies in the GCC have done nothing to prepare for the new tax and only 11% have considered its impact on their businesses.
“All GCC countries have indicated their willingness to adopt VAT from 1 January 2018. This could bring in a situation where the corporate would be given less than 10 months’ time to prepare for VAT implementation. “Companies need to start preparing IT systems and human resources, among other things, to be prepared for this.
“It is an alarming number of companies who have done nothing about VAT yet. It is high time companies became VAT compliant and start engaging with stakeholders to discuss it as it will have a massive impact on business,” Joshi said
“Companies need to develop an alternate source of cash as there will be situations when they have to file VAT before being paid as payments can take up to a year depending on transaction clauses. This is very important to maintain cash flow,” Joshi said.
The demand for tax professionals is going to rise substantially according to an EY official.
Credit: Times of Oman