The GCC-owned companies may particularly be affected by value added tax (VAT), expected to be in place by 2018, and timeliness of refunds will be a key issue businesses look at in evaluating the effect of VAT, according to Ernst and Young (EY).
“GCC-owned companies may be particularly affected by VAT, as many will be required to account for tax for the first time,” Paul Karamanoukian, tax partner, EY Qatar, said.
Policymakers also faces challenges, not least the need to establish an effective VAT administration and to balance this against addressing business concerns, according to him.
Finding that VAT refunds need to be issued promptly for the system to maintain credibility, and with refunds potentially exceeding 30% of gross VAT collections, the numbers will not be small, he said. “Timeliness of refunds will be a key issue businesses look at in evaluating the effect of VAT.”
Referring to the present IT infrastructure for the implementation of VAT, Jennifer O’Sullivan, director, EY Qatar, said that therewere many challenges that would need to be considered.
Companies with large ERP (enterprise-resource planning) systems will benefit from the availability of VAT modules that interface with the existing applications running the business. However, this is not a simple plug-and-play transformation, according to him.
Master file data will need to be updated and VAT transactions will need to be mapped properly in the systems, he said. For companies with less sophisticated IT functionality, VAT taxpayers at a minimum will need to modify their IT systems so they can issue invoices that meet the specific requirements under the law and reflect VAT correctly in their accounting systems.
In a related seminar, PricewaterhouseCoopers (PwC) said one of the focus areas should be the understanding of the IT systems and business processes that will be affected by VAT as part of shaping the VAT implementation project.
“There will be great demands placed on finance and tax departments given the volume of data and number of transactions that will be covered. Ensuring that systems are installed to help manage this will save both time and money, and improve accuracy and efficiency,” Wadih AbouNasr, Qatar’s country senior partner at PwC, said.
Terming that VAT should not be seen in isolation, Marcel Kerkvliet, International Tax Partner, EY Qatar, said with the new focus on government revenues, tax seems set to become a more important business issue in the Gulf Co-operation Council (GCC).
Supply chain and organisational tax inefficiencies are not limited to VAT. This may be a good time for GCC businesses to review their broader operations, to better manage such issues and opportunities as withholding tax exposures and tax treaty relief, he added.
“This will place businesses in a much better position if tax policy developments extend to increased corporate tax rates and closer audit attention from tax authorities,” he said.
Jeanine Daou, PwC Middle East partner and indirect taxes and fiscal policy leader, said that there was a need to review existing contracts that did not accommodate the introduction of a new tax and the companies might be forced to absorb the impact of VAT if the contracts were not amended.
The potential of VAT in GCC countries, some as early as January 2018, will present a number of challenges for businesses and individuals operating in these states, according to PwC.