JEDDAH — GCC government officials confirmed that value-added tax (VAT) will be introduced “as of January 1, 2018, a statement from EY said at the conclusion of the EY-hosted annual MENA Tax Conference at the St. Regis, Dubai on March 16.
The MENA tax conference featured a session on preparing for VAT in the GCC, providing status updates on the tax implementation and the actions that companies in the region need to take.
Finbarr Sexton, MENA Indirect Tax Leader, said:
“The introduction of VAT on businesses will have a broad impact. It will diversify government revenue sources and reduce reliance on oil revenues to finance government expenditures. The additional revenues collected are likely to fund programs for the development of job opportunities for nationals and improve education and healthcare in the GCC. If VAT is not applied correctly, it may become an additional cost to the business. Further, non-compliance with tax laws attracts severe penalties. All businesses must undertake a review of their current contracts to determine if VAT has been appropriately addressed.”
Base erosion and profit shifting (BEPS) recommendations by the by the Organization for Economic Cooperation and Development (OECD) are expected to lead to significant changes in domestic tax laws, international tax agreements, extra-territorial provisions and greater bilateral and multilateral cooperation. Some recommendations will have immediate impact, others will depend on how individual countries interpret and implement the recommendations.
This is one of the perceived weaknesses of BEPS.
Sherif El-Kilany, MENA Tax Leader, EY, said: “The tax landscape across the MENA region is currently going through major changes. GCC governments are now starting to cut subsidies and introduce taxes to help combat the deficit created by the lower oil prices. Changes in the global tax landscape are also expected to have a knock-on effect on MENA countries.
Governments across the world have long been concerned about the shifting of profits into low-tax jurisdictions and corresponding reduction in tax in higher-tax jurisdictions. The recent recommendations by the OECD that address different aspects of base erosion and profit shifting are likely to impact countries in MENA that are typically known for having low taxes.”
He further said “the OECD has no control over what individual countries do with the recommendations, even for its members. It may be some time before the post-BEPS tax landscape is clear. BEPS could challenge MENA tax policies. Countries across the region may face tax leakage as investors respond to pressures to report more profits in their home countries.”
The EY MENA Tax Conference is held in major cities across the world including Dubai, London, Houston, Tokyo and Seoul, with the aim of keeping companies that operate in MENA updated with key tax developments. — SG
