What do businesses need to do?
Value Added Tax (VAT) is a tax on consumption and it applies to almost all goods and services. Most managements are aware that the GCC governments have decided to adopt VAT as an effort to diversify the economy and generate revenue. UAE will also adopt VAT which applies to almost all goods and services except basic food items, healthcare and education. So, it will not only impact consumers but also businesses across the region.
VAT is a widely discussed topic among business owners that raises an important query – how should they be prepared for VAT before it hits them? Their concern is the impact of increase in cost of doing business in the region. It might require more time for business owners to get accustomed with the new system and make a shift from the existing operating structure. They may have to screen their existing suppliers and invest more in manpower to ensure that the right talent is available in the organization.
Though the burden normally lies on the ultimate consumer, the business entities need to change the systems, processes and procedures to comply with the new legal requirement expected to be implemented by the government effective from 1st Jan 2018.
Normal requirements under VAT system that companies need to comply with:
- At the time of purchase of goods or availing of services – ensure that in case of taxable items, the tax has been properly charged (input tax) by the supplier and details given in the invoices.
- At the time of sale or provision of services – apply the rate on the sale value and reduce the amount of input tax to arrive at the amount to be paid.
- Pay the tax due to the Govt. within the stipulated time.
- File VAT returns with the Govt. authorities by providing relevant information requested within the stipulated period.
- Maintain proper stock, invoices, accounts, VAT returns and other relevant records to justify the tax paid at the time of purchase.
The above requirements demand more control and safety on stock, invoices and records, ensure proper filing system, modification/ upgradation of software, compliance of due dates for collection, payment and remittance of tax, filing of VAT returns to Govt. etc.
In the UAE, the SME business sector does not have a stringent financial system and operating policies. As a result, SMEs are going to face challenges implementing the new tax laws as compared to the larger organizations which are normally operated with proper operating policies and structures. It will be a massive effort for the SMEs to cope with the requirements of the provisions of the new law. Every businessman need to maintain proper books of accounts and incorporate VAT into their accounting systems. They need to keep accurate records to demonstrate that they have applied the VAT rules correctly. The role of the accountant will be very important for the compliance of VAT. Maintenance of accounts and records is very important as per new the commercial company law.
Every business will need to maintain proper booksof accounts and will need to incorporate VAT into their accounting systems. They will need to keep ccurate records to demonstrate that they have correctly applied the VAT rules.
Information System will have to take an important role in this. Accounting software needs to comply for ease of business flow and maintain a stringent legal compliance.
Every organization should properly educatetheir employees, well in advance before VAT is implemented.
Remember that VAT is going to be considered all across the region but at different dates. That’s why companies operating in other GCC countries should keep track of VAT and understand the tasks that need to undertake for a smooth transition. They must examine the impact of the special rules on intra-GCC supplies and ascertain whether the current business models need to be restructured according to the provisions of the VAT rules.
VAT can add an extra cost to the business. There can be instances where the VAT paid to suppliers is not refunded from the supply chain downstream. Furthermore, non-compliance with tax laws may also attract severe penalties. All businesses must undertake a review of their current contracts to determine if VAT has been appropriately addressed or not.
An implementation of VAT law would require a complete revamp of present practices and will insist on a higher degree of financial transparency and accounting discipline.