Tuesday 19 / November / 2024
Muscat: A framework agreement for value added tax (VAT) is expected to be finalised during the forthcoming meeting of the Gulf Cooperation Council’s (GCC’s) Financial and Economic Cooperation Committee in October this year.
This follows the finance ministers of GCC states approving the introduction of GCC VAT in Jeddah in June. However, certain procedural aspects will be discussed in details during the forthcoming meetings. GCC states will be ready for the first phase of VAT implementation by the beginning of 2018.
Also, for over six months now, there have been statements by Oman government officials and the media indicating that VAT will be imposed in the Sultanate from January 1, 2018.
According to earlier reports, the GCC countries are going to impose VAT in their respective countries and a consensus exists for the almost simultaneous imposition of VAT according to similar laws for all the countries. “This is to avoid any cross border VAT imposition conflicts (as the GCC countries are already bound by a customs union for the free movement of goods across the GCC),” Davis Kallukaran, managing partner at Crowe Horwath Oman, told the Times of Oman.
Kallukaran said the economic crisis across the globe has been an eye opener for the GCC countries, whose main source of revenue is from oil. “The oil prices have crashed to an unimaginable level, never thought of by the great economists. Apart from the Iranian outflow, various other complex situations have sprout up suddenly,” he said, adding; “No doubt the GCC is looking for alternate sources of revenue for its sustenance. The introduction of VAT is one such alternative.”
The Value Added Tax is a levy added to most goods and services, which is collected from customers by vendors and paid over to the government. Accordingly, a business enterprise will pay VAT on the goods and services it buys (on the purchase price) and collect the VAT from its customers on the goods and services it sells (on the sales price, which might also include the value for any value addition undertaken and profit on the goods before selling).
The difference between the amount which the business enterprise has paid and collected is to be deposited with the designated authority.
“Accordingly, there is no burden of VAT on the business enterprise. VAT is suffered by the ultimate consumer as it is included in the sales price,” noted Kallukaran.
According to earlier reports, VAT at a specified percentage of sales price will be collected for every transaction involving payment of certain goods and services (staple food items, medicines and educational items may be exempted from VAT). Fees paid for services, including small items such as cinema tickets and parking charges, may also be subject to VAT.
Besides, business enterprises with a certain revenue threshold will be obliged to register under the VAT system in the first phase. For business enterprises, with revenue of less than the threshold, it may be optional to register during this phase. It will eventually become obligatory for all business enterprises to register under the VAT system.
It appears that the requirement to be registered will arise in early 2018, once the VAT law is announced. The registered companies will be required to keep accurate records to account for VAT paid and collected and amounts to be deposited with the government authority.
The applicability of VAT on free zone companies or goods imported for re-export might be clarified in the VAT Law when published.
There might be also be an audit of VAT registered entities by the government audit to ensure that the correct amount of VAT is collected and paid to the authority.
Preparedness
Kallukaran noted that the VAT Law and Regulations are expected to be announced sometime in the GCC this summer. Once these are announced, it is possible to understand the requirements and implement procedures for complying with the VAT regulations.
However, in order to be proactive, based on the available information, it would appear that the business enterprises should review their accounting systems and records. Ensure that these are comprehensive enough to support compliance with the VAT regulations, i.e., the accounting records should be able to keep track of payment and recovery of VAT for each transaction accurately, initiate payment of VAT to the authority at the required periodical interval and submit appropriate returns to the government authority responsible for VAT affairs.
The accounting system has to be separate in order to calculate and record the value of items subject to and not subject to VAT (this is important for businesses, such as supermarkets, pharmacies, etc.). In addition the invoices, customers would be required to clearly indicate the amount of VAT charged.
The company’s current accounting system may or may not be able to deal with these requirements. It is possible that the company may require a new accounting system or additional software to bridge your accounting system to the requirements for complying with the VAT regulations.
The corporate sector also needs an efficient inventory management system, as an additional percentage on account of VAT would be tied up in the inventory on hand.
The companies have to manage cash flow efficiently as the net VAT collected might have to be deposited with the authority on specific dates. Failure to do so may result in penalties.
“One should start preparing to implement the VAT requirements as soon as the VAT Law is announced. Eighteen months is not a very long period of time to plan and operate a new system of accounting, billing, inventory and cash management,” Kallukaran noted.
The companies will have to register with the VAT authority, keep accurate accounts in compliance with the VAT regulations, file the required returns with the VAT authority and make the VAT payment on the prescribed dates.
