Value-added tax (VAT) of up to five per cent set to be in place across the GCC by January 2019 is likely to increase with the passage of time, an expert has warned.
BDO Bahrain partner assurance and business advisory Arshad Gadit told guests at a Bahrain British Business Forum (BBBF) event that in the UK where VAT has been in place for a while, three rates are applicable: standard (20pc), reduced (5pc) and zero. For the GCC the standard rate announced for the initial launch is capped at 5pc. Some GCC countries including the UAE have said they will introduce VAT by early 2018, although dates and the road-map for implementation are yet to be announced.
Delivering the keynote address at BBBF’s latest monthly networking lunch at the Diplomat Radisson Blu Hotel, Mr Gadit said for businesses VAT has major implications as it is a self-assessment system under which they are obliged to submit correct returns to the government and pay liabilities in a timely manner. “Whereas 15 months seems a long time to prepare, it is very important that businesses put a process in place as soon as possible to cope with the introduction of VAT,” he added.
A key factor to consider, said the expert, is that as GCC countries will have reviewed VAT systems and practices from across the globe, they are likely to introduce VAT systems heavily dependent on technology to ensure efficiency. All these factors mean it will be a real challenge for local businesses to comply with the new rules. “This indirect tax system is new to the region, although it has been widely used by a number of other countries for quite some time now.” Mr Gadit said as such VAT seems simple to apply but the devil is in the details. “The trick is to start early and avoid causing disruption to your business... Most businesses charge VAT and are generally entitled to reclaim most if not all of the VAT they incur which relates to their business activity,” he explained.
“Consumers pay VAT as a net cost whereas businesses usually pay VAT and have to manage the related negative cash flows pending recovery of that VAT from the tax authorities.” Responding to a question, he said, a co-ordinated approach across the GCC is likely to ensure that a reasonable level playing field is maintained and that distortion of competition arising as a result of domestic VAT legislation is minimised. “Co-operation between GCC countries is likely to lead to a similar (and hopefully simplified) approach to cross-border supplies of goods and services,” he added.
Experts have told GDN in the past that as VAT is a tax on consumption of goods and services, a rise in prices of luxuries at least would be a logical consequence of its implementation, although no information is currently available on what gets taxed and what doesn’t. It is generally believed that basic foods and other essentials like bread, milk, eggs, fruit and vegetables, meat and poultry would be exempt or zero-rated.
Deputy chairwoman Paula Boast led the BBBF meeting which saw more than 100 members including leading businessmen and women in attendance. Ms Boast outlined some of the forum’s forthcoming events for the last quarter of the year, including the annual charitable Poppy Ball on November 18. For the Armistice Day, the BBBF will once again host the Chelsea Pensioners. November also sees the launch of the new ‘Women in Business’ special interest group. The Christmas lunch is planned for December before the final event of the year, BHUK2016 National Day golf event, concludes the year’s activities for the forum.
By Avinash Saxena
