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Looking through the lens of VAT in the GCC

Looking through the lens of VAT in the GCC

Abdulla Al Gurg examines the impact of the incoming value added tax

Throughout the GCC, the impending introduction of value added tax (VAT) has become the highlight of many organisational strategies. It has encouraged business owners to understand the procedures needed to register their services while analysing how taxes will influence their business models.

At ESAG, we fully support the UAE government’s initiative to introduce a 5 per cent VAT. This will not only contribute to the growth of the economy and support infrastructure expansion, but will also provide additional revenue to diversify the economy. In fact, we are currently in full preparatory mode for the implementation of VAT across the group.

Although the proposed rate of 5 per cent is lower than most other countries where VAT has been applied, it is difficult to predict what the overall impact will be. Hence, an element of foresight is essential during the initial implementation stage.

VAT is not simply a tax issue – it is a business issue. It affects some business functions and will no doubt impact financial metrics, especially cash flow. It is imperative that all companies carry out systematic processes such as an impact analysis to evaluate the bearing on critical business functions. The challenge is to identify and address all business issues to avoid any disruption.

While preparation for VAT is essential, it is also an opportunity for companies to recalibrate their systems and process efficiencies. However, business evolution is not a one-time exercise. Whether it’s a start-up company or one that’s several generations old, it is critical to continue to reach above and beyond the norm to stay relevant.

Businesses need to assimilate advanced technologies and systems while readying for VAT’s impact on their business: in operations, finance, compliance and IT structures. Therefore, it is vital for organisations to consider adapting their budgeting, pricing strategy, business model, and contracts to become VAT compliant. Additionally, to be able to successfully manage the effects of VAT, it is important to have a deep understanding of the management of cash flow and profitability from an accounting point of view.

Taxation is an important factor in economic planning. VAT is a fair and simple tax structure that is conducive to economic growth and for businesses to compete in today’s global economy. Similarly, the implementation of such a system will encourage companies across the country to be more transparent with their financial accounts. Hence, organisations should align their audit strategy with the new laws introduced through the tax.

Looking at VAT through the lens of the UAE, it is a natural progression of the country’s growth and future. There are many benefits that will accrue as a result of the implementation of VAT, including additional revenue of 1.5 to 2 per cent of GDP. This is expected to fuel medium to long-term growth in the UAE and GCC, bolstering our position as a major economic hub for both the Middle East and the world. Moreover, one of the most significant impacts of VAT is that it provides data analytics for businesses to better cater to the needs of their customers.

I believe the introduction of VAT will be a relatively smooth transition for both consumers and businesses. Compared to other countries, consumers in the UAE will not be affected as much with regards to regular commodities.

The operational dynamics within most companies will directly be influenced with the implementation of VAT, making it extremely crucial for businesses to understand the laws and comprehend newly introduced procedures. It is advisable that companies train or recruit staff members who specialise in the new VAT procedures, registration processes and indirect billing involved in each step of the supply chain.

It is essential that businesses prepare a roadmap for the transition and get ready for implementation. Employees who are in direct interface with customers should be able to explain the basic modalities of VAT.

With the stated goal to be one of the best countries in the world by 2071, VAT will provide the UAE with the necessary monetary value required to get closer to this objective. Taxes paid will significantly contribute to infrastructure developments, as a part of the country’s growth plans.

Abdulla Al Gurg is group general manager at Easa Saleh Al Gurg Group

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