Businesses in Oman need to get ready for VAT

Value Added Tax (VAT) will be a Gulf Cooperation Council (GCC)-wide tax, which means the region will quickly become familiar with the concept and principles of VAT. However, although further legislations on VAT implementation are awaited, they will also, in limited circumstances, allow the individual GCC member states some discretion on how they will treat certain supplies within their own member state. As a consequence, VAT will not be identical in every member state and this could lead to additional complexity. Similarly, the possibility that all GCC member states may not introduce VAT at the same time adds transitional complexity to the situation. Having said that, there are experts like KPMG, who have significant experience in complex taxation matters and help businesses navigate through the VAT framework. The proposed VAT rate of 5 per cent is relatively low when compared with Europe, China and Australia. But the GCC-wide VAT is expected to generate annual revenues of $25 billion. This revenue could be used to further empower the national economies through improved infrastructure and better schools. Sectors, such as financial services, healthcare and education are likely to make VAT exempt supplies and tend to be more complex from a VAT perspective than others. This is because VAT exempt is not a rate of tax and therefore, VAT exempt supplies typically do not give right to a credit of the VAT incurred in costs. This results in an irrecoverable VAT cost. Where businesses have a mix of both exempt and taxable supplies, they are required to directly attribute certain costs and apportion others.

Five-step guide

1. Prepare a project plan and secure the necessary internal and external resources. Ensure that stakeholders in the business are informed as VAT is not just a finance project. It affects all transactions and so touches every aspect of the organisation. 2. Complete an impact assessment in order to understand VAT and its commercial impact, prioritise the issues and prepare for implementation. This is a key step as it sets the foundation for implementation. 3. Implement necessary changes in systems, processes, controls, reporting and governance. 4. Register for VAT and test the business systems to ensure capability of VAT compliance and reportingw. 5. Test the VAT system, processes and controls during the live phase to allow for complete and accurate completion of the first VAT return. The writer is Partner and Head of Indirect Tax with KPMG Lower Gulf.