The current business climate in the UAE is challenging. And there are many businesses which are retail- and distribution-focused and suffering from rising costs as well as disruptions to our normal collections cycle.

The greatest fear is the impact that VAT may have on consumer demand. Businesses with strategies that can mitigate the risks of losing market share will be best positioned to grow for the long term.

Initially, we had received prohibitive rates for VAT assistance/consultancy upwards of Dh500,000. However dozens of firms have set up shop in the UAE over the last few months and we were able to negotiate rates less than a fifth of the original amounts quoted.

The biggest impact on cost however will be the impact on cash flow cycle for small businesses that do not have the luxury to wait to get a VAT reclaim. And since SMEs form over 90 per cent of all businesses in the GCC, the impact will be felt by these companies in all areas of VAT implementation.

We have formed an internal task force, with our CFO leading the effort. We also have external consultants helping us with the actual implementation. The key is to be prepared well in advance, and give training to all departments and stakeholders as to how VAT will impact them.

Also, belonging to a forum such as the Entrepreneurs Organization (EO) where you can exchange ideas with other business owners can be extremely beneficial.

Of course, there is a lot of uncertainty, unpreparedness and lack of clarity among the smallest of businesses. And since the threshold for compliance is only $100,000 this will cover a great many small businesses, whose current record keeping will need to be greatly upgraded to come into compliance with the new tax laws.

In addition, smaller businesses especially those which are credit-based will face cash flow challenges. Bigger businesses in contrast have larger resources in every sense, and are much better equipped and prepared to deal with VAT implementation.

This may lead to consolidation as many small businesses may not be able to survive higher costs, and financing issues.

In the short term, the consumer, especially lower income households, will be most affected because of the perceived regressive nature of the tax. But a 5 per cent tax rate is very reasonable compared to other economies, and many essential daily food consumables are likely to be exempt.

No one likes taxes, especially when you have been used to none for so long, but after an initial adjustment period I think we’ll be just fine. If you look to the most recent Malaysian experience, they had a very successful experience, as did Singapore, where inflation was very much under control and the impact on ordinary household was minimal.

I think it is a sign of a mature economy. The UAE, offers some of the best infrastructure and services in the world. For the Government to continue to provide this high level of service, they need to diversify, and generate new forms of revenue.

A 5 per cent VAT rate is a very reasonable rate of tax compared to many parts of the world which have rates exceeding 20 per cent. And together with the exemption of essential daily foods, I believe the short term impact will be temporary.

The Swiss Arabian Perfumes Group has been preparing for quite some time now and we will be ready January. However, we feel a GCC wide simultaneous implementation is unlikely, although I do think the UAE and Saudi Arabia will be ready by January.

VAT implementation is not that simple, and can involve a lot of complexities. SMEs will need a lot of guidance, training and hand holding. So there will be plenty of learning for everyone in the short term, but the UAE has an excellent record for implementing innovation.

The writer is Director at Swiss Arabian Perfumes Group.