Up to 49 per cent of GCC businesses are not ready for implementation of value added tax (VAT), a new survey has found.
The GCC states plan to impose VAT at a rate of 5 per cent from January 1, 2018.
However, the survey, conducted by ACCA and Thomson Reuters, showed that only 11 per cent of GCC firms understand the impact of VAT on their businesses. They are the only ones to have drafted a VAT policy, consider compliance models and identify IT system gaps, the report added.
The study, which polled 330 respondents across industries including construction and engineering, manufacturing, oil and gas, financial services, retail, and consultancy, also found that various businesses in the region lacked in-house VAT expertise.
While 38 per cent of the respondents said their businesses lacked in-house resources, 44 per cent said they possessed limited resources. Only 18 per cent claimed to have sufficient resources.
Meanwhile, only 12 per cent of organisations have made budgetary provision for VAT in 2017.
Among the rest, 68 per cent said they had not made budgetary provision for VAT because they were waiting for further clarity on the framework, while 16 per cent have not thought about their VAT plans yet and 7 per cent believe that VAT would not impact them.
In terms of IT system readiness, the report found that 29 per cent of the surveyed companies are capable of supporting VAT implementation. The report added that 18 per cent of respondents said their systems were “partially ready” and 8 per cent have old IT systems that are not capable of implementing VAT logic.
Interestingly, 35 per cent of the organisations are not certain if their current IT systems will handle VAT.
The report also showed that 75 per cent of the surveyed organisations failed to engage with their tax advisor to understand the consequences and necessary-changes related to the tax.
Pierre Arman, Market development lead for tax and accounting at Thomson Reuters, said: “Not being sufficiently prepared to manage VAT by 2018 could see organisations exposing themselves to the risk of compliance failures, as any tax legislation always carries penalties and other enforcement measures.”
The report suggested a number of recommendations for GCC business to consider.
Organisations must allocate a budget for VAT and engage with a tax advisor as soon as possible. They must understand their VAT compliance, legal obligations and associated financial risks, it urged.
Similarly, identifying potential IT system gaps for VAT implementation is essential. Increased attention should be given when observing existing billing systems – businesses must identify what VAT compliance data is available and what is not for VAT calculation. Accordingly, a roadmap is to be designed to reflect necessary upgrades before the VAT implementation date.
They must also evaluate which VAT reporting model they want to implement and plan for the appropriate operational decisions and its consequences.
“The introduction of VAT is positive change for this region as it will create a new source of stable revenue for governments while having the least negative impact on regional economies,” added Arman.