How businesses in Oman can become VAT ready!
SUCCESSFUL introduction of Value Added Tax (VAT) in United Arab Emirates (UAE) and Kingdom of Saudi Arabia (KSA) from January 1, 2018 is likely to be considered as a positive development by the other four signatories to Gulf Cooperation Council (GCC) VAT framework including Oman.
In Oman, recently the Ministry of Finance, through its Ministerial Decision 64/2018 and Executive Regulation of the Finance Law no. 118/2008, have added in the State’s General Budget Classification Manual, specific Account Name and Account Directory description, inter-alia, VAT. This addition of name in the State’s General Budget documents likely to track the amount collected from VAT and thus, could be perceived as a pre-cursor to introduction of VAT.
Given this, it may be just a matter of time, that VAT could become a reality in Oman. While the precise date of introduction could be elusive at the moment, still the importance of early initiation of steps to become VAT ready cannot be underestimated, thus, the author throws light on few of key steps to take to be VAT ready.
Step I - Decode VAT
It is an accepted fact that VAT is not merely a tax change but a
CA PRITAM MAHURE* business change as it will impact all functions of an organisation such as finance, sales, procurement, pricing, information technology, contracts, supply chain and logistics, warehousing, commercials etc. Thus, it is imperative that all these functional teams should be aware about the VAT. But the underlying question is what should these team members read/ refer for VAT?
Key aspects
In this regard, its pertinent to note that most of the key aspects of the VAT regime are already in public domain through various such as Common VAT Agreement of the States of the GCC. Additionally, experience of introduction of GST/ VAT in other countries could be of relevance.
Thus, based on this qualitative and quantitative knowledge available in public domain the organisation may consider sensitising entire business eco-system i.e. not only the employees but also vendors (such as Tier-1, Tier-2 vendors etc.) and key customers of the organisation. It goes without saying that an early initiation of training will give the concerned employees, vendors and customers a sense of involvement and instil a confidence to gear up for the change much before VAT legislation is put in the public domain.
Step II - Understand VAT impact
VAT may provide opportunities but at the same time it could bring challenges. Given this, an organisation may consider carrying out an exercise to identify how its operations will get impacted because of VAT typically referred as ‘VAT Impact Analysis’. For VAT Impact Analysis exercise, the respective department heads such as finance, supply chain, product pricing, human resource etc. should be involved to ensure that they provide their inputs and suggestions.
Possible cost savings
Going one step forward, organisations can also identify possible cost savings which key suppliers / vendors could be entitled to in the VAT regime. Based on the possible cost savings to suppliers / vendors, the organisations can have discussion with its vendors for passing of benefits by way of cost reduction, if any, in the coming years (i.e. after VAT is introduced).
Early discussion and engaging with vendors will ensure maximum possible benefit to be passed on to the organisation.
Organisations will also have to take into consideration the increase (most likely!) or decrease (least likely!) in tax compliances. Thus, the human resource department will have to be informed about the VAT regime so that they can anticipate the increase in the manpower and plan to create a VAT team in the organisation. (Part I)
Pritam is author of five books on VAT and has addressed more than hundred seminars on VAT across the world. He can be reached at pritam@morisonmjstax.com)