Dubai: While it is not clear yet whether or not UAE consumers will be made to pay value-added tax (VAT), some businesses are already getting ready for any eventual tax reforms that may be introduced sooner or later.
According to global audit and advisory services company KPMG, companies now need to look at their “overall tax readiness” as the prospects of VAT, as well as the proposed corporate tax, are gaining more importance.
The company confirmed on Wednesday that it has conducted a tax seminar for its clients and industry stakeholders on the “Changing Tax Landscape in the UAE” to share their ideas on how businesses can prepare themselves for impending tax-related legislations.
The gathering was attended by 150 representatives from the business community in the UAE and other parts of the Gulf Cooperation Council (GCC) region.
The introduction of new tax rules can affect how companies function, particularly in the aspect of pricing and accounting. If new tax rules are implemented, businesses have to ensure that dues are correctly charged, so there is a need to review their financial systems and operating structures.
“Both corporate tax and VAT are likely to impact other functions of the business, such as finance, legal, IT, strategy,” said Ashok Hariharan, head of tax for KPMG Middle East and South Asia region.
However, such moves could be taken as premature since it may take some time before VAT is finally implemented in the region, according to some analysts, considering that the proposal can have political and social implications.
Alp Eke, senior economist at the National Bank of Abu Dhabi (NBAD), said there are various reasons why he believes that the GCC countries are unlikely to implement VAT in the near term.
He said the introduction of VAT can “dilute” one of the region’s “key advantages of being viewed as a zero-tax environment.”
Besides, he said, the GCC countries still have other options “in terms of balancing their budgets before having to resort to more traumatic options such as the introduction of VAT.”
If VAT is introduced, he said, there is likely going to be some “negative reaction” from the consumers in some countries.
“The introduction of a low level of VAT in the UAE may create only minor dissent, but in Saudi Arabia (where there is 12 per cent unemployment among locals) the introduction of VAT might cause significant public dissent,” Eke told Gulf News.
“A similar reaction could happen in Oman and Bahrain as well. Kuwait does have a parliamentary system, however, VAT will likely not bode well with parliament members.”
While it may be too early for businesses to start making widespread changes to their supply chain functions or to their operating and business structures, there are a number of measures that companies must start or actively consider now so they can “effectively transition to a tax payable environment,” according to Nilesh Ashar, partner, head of tax, at KPMG in the UAE.
“Some of these include modeling the fiscal impact of taxes in business plans by making reasonable assumptions, reviewing intercompany arrangements to determine the basis of cross – charges ( or lack thereof), reviewing contracts to assess current position of tax clauses, analysing financial systems to assess overall readiness, and also reviewing the potential impact of taxes on supply chain and operating structures,” KPMG said in a press statement.
Businesses are advised to keep an eye on any tax-related developments. “We encourage all UAE organisations to continue monitoring tax developments and updates, and model the financial impact of corporate tax and VAT in their business plans,” said Hariharan.
“Internal stakeholder communication and awareness is also key, as both corporate tax and VAT are likely to impact other functions of the business, such as finance, legal, IT, strategy.”
“Once the legislation has been established, firms will have to prepare an implementation plan up to the end of the first year to test all tax compliance aspects and get ready to train, hire and develop resources in order to be tax compliant.”
