Riyadh — The introduction of a harmonized Value Added Tax (VAT) and excise tax in the Gulf Cooperation Council (GCC) by 2018 constitutes an important policy reform that aims to reduce reliance on hydrocarbon revenues.
According to the IMF, these taxes should help regional governments achieve medium to long-term social and economic policy goals as they seek to further diversify their sources of revenue away from oil and gas.
Earlier this year six GCC countries reached consensus on introducing VAT at a rate of 5%. This will be applied to most goods and services with some limited exceptions such as basic food items, healthcare and education.
With 2018 fast approaching, it is critical for businesses in the GCC to start planning now for the impending arrival of the new tax regime, said Michael Armstrong, Institute of Chartered Accountants in England and Wales Regional Director for the Middle East, Africa and South Asia (MEASA).
He recommended five points to get businesses VAT-ready:
1. Defining the VAT requirements products and services. Although the legislation is yet to be announced, businesses should start planning and making reasonable assumptions about the products that are likely to be included in the tax list.
2. Putting in place the appropriate organizational structure and resources to operate in the new business environment.
3. Integrating VAT compliance into current operational processes.
4. Setting up IT systems to support VAT compliance processes.
5. Most importantly, businesses need to establish process controls to minimize risks from people, processes and technology. — SG