VAT in Oman: Businesses should take practical steps now

IMRAN MUSHTAQ & JESAL SHAH*

THE recently published Oman State Budget confirmed that Excise Tax will be introduced during 2019 — bringing clarity to importers and producers, and their customers in the supply chain, of selected goods deemed to be harmful to health and / or the environment.

The budget did not however include any details of the proposed implementation date for Value Added Tax (VAT), which has already been pushed back from earlier proposed dates. This will no doubt cement the widely held view that VAT will now be delayed beyond the target date of September 2019.

Whilst a measured approach to the introduction of VAT will be welcomed by businesses and consumers, VAT runs the risk of being pushed down the list of business priorities.

Darcy White, Senior Tax Partner and Head of Tax at PwC Oman, notes that: “The key lesson from PwC’s VAT implementation projects in UAE, KSA and Bahrain, was that companies that started their VAT planning and implementation projects early fared much better, and had a smoother transition to VAT, than those that waited for the final publication of the domestic law and regulations.”

Encouragingly some businesses have already started their VAT planning and have commenced impact assessment studies, with others imminently poised to do the same.

However, many businesses are taking a ‘wait and see’ approach, awaiting a formal announcement from the Ministry and/ or the publication of the final Oman VAT law and regulations. Both approaches have merit, and will be rooted in the respective business’ current (competing) priorities and demands.

A ‘wait and see’ approach backfired on many businesses in the UAE, Kingdom of Saudi Arabia (KSA) and Bahrain (the implementing states), where there was minimal time between the release of the law and regulations and the go-live date.

The Ministry of Finance in Oman has maintained that it intends to give taxpayers sufficient time between the release of the law and the go-live date, giving businesses sufficient time to plan.

PwC’s experience in the implementing states showed that businesses with entirely domestic operations needed up to six months to prepare for VAT, with larger businesses, and those with international transactions, requiring up to nine months and longer.

What should businesses do now?

Imran Mushtaq, Indirect Tax Director and VAT lead for PwC in Oman states: “The absence of the VAT law and regulations should not preclude businesses from planning and budgeting for VAT. The GCC VAT framework agreement, and domestic VAT laws of the implementing states, provide a good indication of likely VAT treatments in Oman.”

Whilst businesses may defer their VAT preparations, practical steps can be taken now to assess the relative magnitude and complexity of the task ahead.

Identify a VAT working group

Businesses should form an internal VAT working group comprising key stakeholders. The group should monitor developments in VAT and ensure that VAT is on the Board agenda and included in budget discussions.

Increase VAT Awareness

VAT awareness is key. Many employees in the region have never dealt with VAT, and a solid understanding of the mechanics, scope and terminology of the new tax regime is crucial.

Document transaction flows

VAT is a transaction tax, with each transaction triggering a potential value added tax consequence.

Businesses should map their holistic business environment to aid the determination of likely VAT treatments.

Review Contracts

Contracts should be reviewed to ensure they are ‘future proofed’ for the introduction of VAT. For example, to identify whether they include suitable clauses allowing VAT to be charged in addition to contractually agreed prices.

Assess the IT infrastructure

The IT infrastructure will be the ‘backbone’ of the VAT compliance function. Businesses should assess their IT environments and system capabilities to handle all aspects of VAT compliance – from issuing VAT compliant invoices to producing the VAT return.

Identify resources

Businesses should assess their VAT resource requirements, particularly if they are to be sought externally. Experience from the implementing states has shown that skilled VAT resources are drawn from a diminishing pool of individuals.

Engage industry associations

Businesses should engage industry associations to discuss the best practice approach to value added tax implementation for the sector. Industry associations may also be ideally positioned to raise common issues and concerns with the Ministry of Finance, particularly in advance of the formal publication of the value added tax law.

Jesal Shah, Indirect Tax Manager at PwC Oman, commented: “Businesses may choose to defer their VAT implementation projects, however they should be able to demonstrate to their respective boards and shareholders, that they have done so only after undertaking an appropriate level of due diligence of the likely VAT environment – anything less would be to ignore the inevitable.”

* Imran Mushtaq is the Indirect Tax Director and VAT lead for PwC in Oman

* Jesal Shah, Indirect Tax Manager at PwC Oman