BULLS VS BEARS | Tax Time
Jeanine Daou, Partner & Middle East Leader for Indirect Taxes and Fiscal Policy, PwC
Understanding and Planning Essential It is important to understand how VAT will impact your business. For example, VAT will apply to most goods and services and therefore businesses will need to consider how it will effect margins. VAT will be incurred on costs so businesses need to consider if this VAT cost will be recoverable. There could be a potentially significant impact on margins and costs and this needs to be reviewed and considered. Businesses also need to plan for VAT implementation and consider whether existing systems and processes can cater for VAT and what changes need to be made. There can be significant administration for businesses in managing VAT - identifying VAT on supplies, identifying recoverable VAT and making relevant declarations and paying VAT due and resources need to be dedicated to this in order to properly manage the process. These resources may be internal or external (or combined) however businesses need to plan ahead. Another immediate consideration is the identification and review of contractual arrangements with customers and suppliers. It is important that contracts with customers provide for the addition of VAT (if it is applicable) as long term contracts that do not provide for VAT may be assumed as inclusive of taxes and therefore lead to reduced income
for the business when VAT is introduced. Understanding and planning is therefore essential in ensuring that the transition to VAT has a minimal impact on the business.
Should be Considered as Part of Business Strategy
Understanding the impact and planning for implementation is essential and therefore VAT needs to be considered as part of the business strategy. Finance will clearly be impacted as there will need to be changes to processes, controls and reporting in order to identify VAT charged and recoverable and identify and pay VAT due. A key change will be the reporting at transaction level as each transaction will have an associated VAT treatment and these must all be identified to justify that the correct VAT has been reported and paid. There will also be new documentation requirements as invoices will need to be recorded to show VAT. Content and format of invoices will also need to be reviewed to ensure these meet the legal requirements. From a legal perspective, businesses will need to review contracts with customers and suppliers to ensure VAT can be charged and business terms and conditions need to be reviewed to allow and provide for VAT. From an IT perspective businesses need to consider changes required to systems to record and identify VAT.
Wrapping Up
All in, the proposed VAT, when formally announced and implemented, will have an overarching impact on all functional and operational aspects of firms, be it finance, legal or IT. Also, any talks on VAT spurs questions on looming accounting overhaul that firms and companies in the UAE will have to undertake in preparation for the imposition of VAT, when its date of implementation is confirmed. Especially, the accounts payable and accounts receivables are areas that require close monitoring and accurate record keeping by trading establishments. Although the Ministry of Finance has indicated that businesses will have 18 months to adjust their business plans before VAT is implemented, firms can think over these lines as pointed out by experts here to get better equipped for the likely future.
February 2016 |
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