BULLS VS BEARS | Tax Time
economy from importer, manufacturer, wholesaler, retailer and finally to the end consumer. Common feedback from businesses impacted for the first time by a VAT regime is that businesses underestimated the financial and operational impact of the change on their companies. Given that businesses in the UAE have operated in a relatively tax free environment, with the only Government tariff being customs duties, it can be expected that businesses will face a difficult transition moving their business processes and reporting routines to a platform that is VAT ready.
Firms to Strategizing on Communications In other countries where a VAT was
Jyothi Kasi, Partner, KPMG in the UAE
Firms may Go for Preliminary Steps It is very difficult to suggest anyone should make radical changes in response to an unpublished law. However, companies may undertake few actions to be ready. For example, they can continue to monitor tax developments and updates, assess the financial impact of corporate tax and VAT, internally review financial system to assess overall tax readiness and consequently plan for accounting changes. Among other things, firms can also determine intra-group transactions and dependencies, prepare revised financial statements for prior year comparison when taxes are eventually introduced, re-visit contract clauses dealing with price and taxes (change in law clause, taxes inclusive/exclusive) to assess their organization’s tax awareness, especially in the finance function.
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Changes in Functions and Operating Structures Companies will have to make changes to their operating model and supply chain in order to manage tax as it will impact their profit margins. They may
choose to adapt their business model to pass on the burden of tax to the consumer or they may try to absorb the entire burden of tax or a part of it in the initial year or so. Functions such as finance, legal and IT should be geared to ensure that the business is fully compliant with tax laws.
Accounting Overhaul Imminent Accounting systems should be able to identify and record VAT payable or receivable across the entire supply chain of the business. It should also be able to identify and record exemptions, rebates or other special treatment for VAT on particular transactions. Any information required for compliance with the tax laws including filing of tax returns, submission of information in case of a tax audit etc should be easily obtainable from the accounts. Once the details of the law are known, companies will have to map the particular changes that are required to be done to their accounting systems in order to be fully ready for implementation. The Ministry of Finance has already indicated that businesses will have 18 months to adjust their business plans for this purpose.
www.wealth-monitor.com | February 2016
introduced, businesses were best positioned by beginning early to give consideration to the implications of a VAT implementation. The bloodline for all business is the interface with customers and vendors — order and billing systems, pricing presentations and invoicing will all change for businesses, customers and products impacted by VAT. In addition to understanding and planning the likely system changes, businesses will want to strategize on customer communications and consider whether the proposed law creates a competitive advantage or disadvantage for their business or products.
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