TAX RE­FORMS ON THE ANVIL

Qatar Today - - INSIDE THIS ISSUE - BY V L SRINI­VASAN

The days of tax-free regimes in the GCC re­gion are set to end with the Min­istry of De­vel­op­ment Plan­ning and Sta­tis­tics (MDPS) con­firm­ing that Qatar will in­tro­duce a 5% value-added tax (VAT) from Jan­uary 1, 2018.

THE DAYS OF TAX-FREE REGIMES IN THE GCC RE­GION ARE SET TO END WITH THE MIN­ISTRY OF DE­VEL­OP­MENT PLAN­NING AND STA­TIS­TICS (MDPS) CON­FIRM­ING THAT QATAR WILL IN­TRO­DUCE A 5% VALUE-ADDED TAX (VAT) FROM JAN­UARY 1, 2018.

“This is the per­fect time for the com­pa­nies in Qatar to start pre­par­ing for the VAT im­ple­men­ta­tion by con­duct­ing an im­pact assess­ment of their op­er­a­tions, and up­grad­ing their sys­tems to ac­com­mo­date the VAT re­quire­ments and be in com­pli­ance with VAT leg­is­la­tion in the coun­try.” CRAIG RICHARD­SON Part­ner Tax and Cor­po­rate Ser­vices, KPMG Qatar and Bahrain

The Min­istry of Fi­nance has al­ready ini­ti­ated the ex­er­cise of draft­ing do­mes­tic leg­is­la­tion for VAT and is ex­pected to is­sue the same in the first half of 2017. Im­pos­ing VAT was a GCC-wide agree­ment, MDPS said in its semi-an­nual eco­nomic up­date early this year. Lead­ers of the sixmem­ber Gulf States de­bated the sub­ject for more than a decade and adopted a draft VAT frame­work ex­ec­u­tive sum­mary in May 2015. Sub­se­quently, the states held sev­eral rounds of meet­ings and fi­nally agreed on the in­tro­duc­tion of VAT in the GCC in June this year.

While these coun­tries had sur­plus cash re­serves ow­ing to high oil prices till June 2014, they started to feel the pinch as the oil prices crashed from $114 per bar­rel at that time to as low as $27 per bar­rel early this year. This is said to be one of the rea­sons for the GCC re­gion to tighten the purse strings and take sev­eral steps to rein in their re­spec­tive economies. The steps in­clude grad­ual phas­ing out of food and fuel sub­si­dies.

Be­sides VAT, Qatar is con­sid­er­ing levy­ing ad­di­tional taxes on items such as fast food, tobacco and soft drinks. It also plans to hike the wa­ter and power tar­iffs to bring them closer to fair mar­ket value as they are still heav­ily sub­sidised at present. The gov­ern­ment has al­ready in­creased power and wa­ter tar­iffs ear­lier last year.

The pos­si­bil­ity of new taxes will nudge up Qatar's con­sumer price in­fla­tion and these mea­sures are ex­pected to cause in­fla­tion to in­crease from 3.4% this year to 3.8% by 2018, the min­istry's eco­nomic up­date said.

Right time

“This is the per­fect time for the com­pa­nies in Qatar to start pre­par­ing for the VAT im­ple­men­ta­tion by con­duct­ing an im­pact assess­ment of their op­er­a­tions, and up­grad­ing their sys­tems to ac­com­mo­date the VAT re­quire­ments and be in com­pli­ance with VAT leg­is­la­tion in the coun­try,” said Craig Richard­son, Part­ner, Tax and Cor­po­rate Ser­vices, KPMG Qatar and Bahrain.

While how much rev­enue the pro­posal will gen­er­ate can­not be as­sessed as of now, the ma­jor im­pact of VAT on com­pa­nies will be gear­ing up for the tax, un­der­stand­ing how to ap­ply the draft leg­is­la­tion (when is­sued) and the im­pli­ca­tions on all as­pects of their busi­ness in­clud­ing Trea­sury, Fi­nance, HR, Pro­cure­ment, Sales, Le­gal and IT, he said. Richard­son also said that VAT, be­ing a con­sump­tion tax on the end cus­tomers, is ul­ti­mately borne by them. To mit­i­gate the ef­fect of this bur­den on low in­come earn­ers, many ba­sic food­stuffs are ex­empt from VAT and the same could ap­ply to medicines and med­i­cal equip­ment and other es­sen­tial items. “This is how VAT works. Sim­plis­ti­cally, com­pa­nies that are reg­is­tered for VAT pass it through as in­put tax in­curred on their pur­chases against out­put tax on their sales, and pay over the ‘net amount' to the tax au­thor­i­ties,” he pointed out.

Many chal­lenges

How­ever, it is not go­ing to be an easy task for the GCC coun­tries to im­ple­ment VAT ef­fec­tively as they face many chal­lenges and need sev­eral im­por­tant se­quen­tial steps to secure it.

“The GCC govern­ments have to es­tab­lish an ef­fec­tive VAT ad­min­is­tra­tion, IT sys­tem and a well-trained pro­fes­sional work­force with the nec­es­sary knowl­edge, skills and com­pe­ten­cies to ef­fi­ciently ad­min­is­ter the VAT sys­tem, de­velop and de­liver pub­lic and in­dus­try in­for­ma­tion cam­paigns and ed­u­ca­tion pro­grammes to en­sure that tax­pay­ers are fully aware of their rights and re­spon­si­bil­i­ties, and the likely im­pact the tax will have on them,” Richard­son added.

Global au­dit and con­sult­ing firms such as Price­wa­ter­house­Coop­ers (PwC) and Ernst & Young (EY) have been hold­ing

“Cor­po­rate struc­tures and sup­ply chains also need to be an­a­lysed in light of the new tax to en­sure that po­ten­tial in­ef­fi­cien­cies can be de­tected and ad­dressed in a proac­tive man­ner.” FIN­BARR SEX­TON MENA In­di­rect Tax Leader Ernst & Young Qatar VAT work­shops as part of a re­gion-wide ini­tia­tive to up­date lo­cal busi­nesses on the lat­est de­vel­op­ments and the im­pli­ca­tions of the leg­is­la­tion. At one such meet­ing in Qatar, tax ex­perts from PwC felt that VAT will present a num­ber of chal­lenges for busi­nesses and in­di­vid­u­als op­er­at­ing in the re­gion. Ad­dress­ing the par­tic­i­pants, Wadih AbouNasr, Qatar Coun­try Se­nior Part­ner, said that PwC's re­cent pub­li­ca­tion en­ti­tled “Man­ag­ing Tax” high­lighted the im­por­tance of in­vest­ing in tech­nol­ogy to help man­age the ad­di­tional work­load that VAT would in­tro­duce in the com­ing days.

“The clients we sur­veyed and spoke to recog­nised that mak­ing the re­quired sys­tems changes for VAT would be a ma­jor chal­lenge. They also saw that putting in place ap­pro­pri­ate con­trols and tax knowl­edge to man­age VAT tech­ni­cal is­sues would also be chal­leng­ing,” he averred.

Wadih fur­ther said, “It can be easy to un­der­es­ti­mate the amount of time and re­sources that will be re­quired to im­ple­ment VAT ef­fec­tively. There will be great de­mands placed on fi­nance and tax de­part­ments given the vol­ume of data and num­ber of trans­ac­tions that will be cov­ered. En­sur­ing that sys­tems are in­stalled to help man­age this will save both time and money, and im­prove ac­cu­racy and ef­fi­ciency.”

Broad im­pact

Fin­barr Sex­ton, MENA in­di­rect tax leader, EY, said that VAT will have a broad im­pact and di­ver­sify gov­ern­ment rev­enue sources and re­duce re­liance on oil rev­enues to fi­nance gov­ern­ment ex­pen­di­tures.

He said that the time­lines for busi­nesses to build out the VAT ca­pa­bil­ity was chal­leng­ing as it re­quired care­ful plan­ning and a struc­tured pro­gramme to en­sure that the busi­ness was VAT ready, in­clud­ing peo­ple, pro­cesses, con­trols and tech­nol­ogy. “Cor­po­rate struc­tures and sup­ply chains also need to be an­a­lysed in light of the new tax ... to en­sure that po­ten­tial in­ef­fi­cien­cies can be de­tected and ad­dressed in a proac­tive man­ner,” he said.

Sound­ing a word of cau­tion, he said that busi­nesses may have to bear ad­di­tional costs if VAT was not ap­plied cor­rectly and non-com­pli­ance with tax laws would at­tract se­vere penal­ties. “All busi­nesses must un­der­take a review of their cur­rent con­tracts to de­ter­mine whether VAT has been ap­pro­pri­ately ad­dressed,” he said.

He said that the GCC mem­ber states are at vary­ing de­grees of readi­ness for VAT im­ple­men­ta­tion but it is ex­pected that at least some coun­tries will come out with their re­spec­tive VAT laws shortly af­ter the re­lease of the GCC VAT Frame­work Agree­ment, and there­fore, be­fore the end of 2016. The im­ple­men­ta­tion of VAT in the GCC from 2018 means that busi­nesses op­er­at­ing in the GCC now only have 14 months to pre­pare for its im­ple­men­ta­tion and to be­come com­pli­ant with the re­spec­tive GCC VAT laws. As such, GCC busi­nesses should ini­ti­ate a VAT im­pact assess­ment im­me­di­ately in or­der to de­ter­mine the im­pact that VAT will have across their op­er­a­tions, he said. This assess­ment should con­sider the im­pact of VAT in key ar­eas such as fi­nance and ac­count­ing, IT and sys­tems, tax and com­pli­ance, sup­ply chain - goods and ser­vices, con­tracts, sales and mar­ket­ing, le­gal struc­ture and hu­man re­sources. “The im­pact assess­ment should be used to de­velop a clear plan as to the steps that must be taken to be ready for VAT from Jan­uary 2018 and this plan should be im­ple­mented as soon as pos­si­ble,” Fin­barr said.

The GCC Fi­nance Min­is­ters are also ex­pected to fi­nalise the GCC Ex­cise Duty Frame­work Agree­ment in ad­di­tion to the VAT reg­u­la­tions. They have al­ready dis­cussed im­ple­ment­ing ex­cise duty in their coun­tries from Jan­uary 1, 2017. The GCC Ex­cise Duty Frame­work has also not yet been of­fi­cially re­leased, but it is ex­pected to be made pub­lic by end of 2016, he added

“The clients we sur­veyed and spoke to recog­nised that mak­ing the re­quired sys­tems changes for VAT would be a ma­jor chal­lenge. They also saw that putting in place ap­pro­pri­ate con­trols and tax knowl­edge to man­age VAT tech­ni­cal is­sues would also be chal­leng­ing.” WADIH ABOUNASR Coun­try Se­nior Part­ner Price­wa­ter­house­Coop­ers Qatar

Newspapers in English

Newspapers from Qatar

© PressReader. All rights reserved.