Dubai: The collection of value-added tax (VAT) will generate considerable revenues per year for the UAE and the rest of the members of the Gulf Cooperation Council (GCC) region, according to Ernst & Young.
The public accounting firm said on Monday that the 5 per cent VAT will produce an extra income of more than $25 billion (Dh91.8 billion) every year for the six GCC countries, which will be substantial enough to boost infrastructure spending in the region.
"This will allow them to amend the tax policy and other fees and charges, and increase infrastructure investments,” EY said in a statement on Monday.
The new tax policy is scheduled to take effect on January 1, 2018. David Stevens, VAT implementation leader at EY, said that while the introduction of new tax on goods and services may seem daunting to consumers and businesses, the overall impact is not that huge.
“[The impact] is less than the usual annual inflation rate,” said Stevens, who has just been appointed by EY to help clients with the adoption of VAT.
Not all businesses are expected to start collecting VAT by the go-live date. Considering the work that needs to be done to update their systems and processes, some companies may take some time to transition into the new tax environment.
“The expected VAT laws are not ‘business as usual’ and may require several months for companies to successfully integrate a VAT functionality into their systems,” said Sherif El-Kilany, EY tax leader for Middle East and North Africa.
Companies, are however, warned that failure to get everything ready by January 1, 2018 might lead to transaction and sales issues.
“Businesses that are not ready by the VAT go-live date may suffer fiscal consequences from the inability to pass on the underlying VAT to the end customer. All GCC countries are expected to have implemented VAT by the end of 2018,” EY said.
David said companies should focus on hiring the right accounting and IT professionals that have previous VAT experience.
“As this is a new scheme, there is a limited pool of expertise that all GCC businesses are recruiting from. Additionally, the GCC ministries are building their tax administration systems almost from scratch and will require expansive teams to first develop the processes, and then monitor compliance after 1 January 2018,” David said.