Dubai: The implementation of Valued Added Tax (VAT) in Gulf Cooperation Council (GCC) countries next year will be a trigger for a massive wave of digital transformation as businesses prepare to ensure compliance with the new tax law, according to a new study by Oracle and Harvard Business Review (HBR).

The study, based on a poll of 450 senior company executives from across the GCC, reveals 73 per cent of businesses consider VAT implementation a key opportunity to initiate wider digital transformation projects within their organisations.

Everything you need to know about VAT in UAE

With businesses required to automate their processes to ensure that transactions are captured flawlessly for VAT compliance, 66 per cent of respondents also said they would consider transitioning their business processes from on-premises systems to the cloud if major cost savings can be identified.

“Cloud adoption across GCC countries is growing at a rapid pace and becoming mainstream as businesses now realise that cloud applications offer them speed, innovation, security, and better return on investment. IDC estimates that Public Cloud spending across the META region will reach $715 million in 2017 and VAT compliance is expected to further drive this trend”, said Arun Khehar, senior vice-president, Oracle ECEMEA [Eastern Central Europe Middle East & Africa, Oracle.

With the VAT compliance deadline quickly nearing, the Oracle/HBR study also explored the current VAT preparedness levels of businesses across GCC. While 21 per cent of respondents confirmed that they have initiated preparations to be VAT compliant; 30 per cent indicated that they currently have limited information on VAT.

In addition, 47 per cent of respondents said they were awaiting further guidance from local governments before initiating their VAT compliance project.

On their biggest obstacles in their journey to be VAT-compliant, 68 per cent of surgery respondents said managing business process changes would be a key challenge.

And 38 per cent of respondents cited a lack of qualified internal tax experts and another 35 per cent were found to be uncertain about the changes that a new technology implementation would bring.

“With just a few months until VAT goes live, many companies urgently need to change their business processes, IT systems, and scale up their workforce,” said Aarti Mohan, ERP and EPM application strategy leader, Oracle. “Our advice to all businesses is to start now with a 360 assessment across the business to evaluate the potential impact and transformation needs to quickly become VAT-compliant.”

According to the GCC VAT agreement, it two GCC countries go live with the VAT law by January 2018, the other four will be required to implement the same within the next 12 months. As Saudi Arabia and the UAE are set to roll-out VAT in January 2018, others are likely follow in mid-2018. The Oracle/HBR survey indicates that as of June 2017, only 21 per cent of GCC business had started preparing for VAT and more than three quarters with awaiting more clarity on VAT laws.

With just a few months to go for VAT implementation in the UAE and Saudi Arabia, Oracle officials said companies must ramp up their preparations in terms of businesses processes, information technology systems and scale up the workforce.

While the VAT implementation is expected to radically transform IT processes of the GCC business, it will also have lasting impact on cloud adoption in the region.

“There are several benefits of placing tax functionality in the cloud, as the applications are updated by vendors on a regular basis; if the amount of VAT changes, or if another tax regulation is put in place, system upgrades will be automatically rolled out with the next release. More importantly, with VAT in the UAE and Saudi Arabia taking effect on January 1, 2018, it is important for organisations to ensure timely preparedness, which an ERP Cloud solution can achieve within weeks,” said Khehar.