VAT Implications

VAT is on its way and in less than a year we will be affected by it.  There are conferences being organised to educate people on the implications on VAT in the UAE. Individuals and companies especially must take steps to ensure that a proper strategic plan is in place to minimise VAT impacts.

 

It is important to know how VAT works and its impact on businesses, implementation approach and roadmap as well as VAT compliance and technology challenges.

 

Recently, senior tax experts have advised companies across the UAE and the Gulf Cooperation Council (GCC) to be well versed with different aspects of VAT and chalk out a clear roadmap to ensure timely and smooth implementation of VAT in the UAE and across the GCC by beginning of next year.

 

As the GCC Member states are in the process of agreeing on a common framework for the introduction of a VAT system in the GCC next year, each member state is expected to issue its own national VAT legislation based on the agreed common principles upon ratification of the GCC Treaty.

 

Jeanine Daou, ME Fiscal Policies and Indirect Tax Leader and Rob Hucknall, ME Finance Consulting Partner, both from PricewaterhouseCoopers, said during a session on ‘VAT in the GCC – Recent developments’ at the recently held CIOMajlis in Dubai, that the role of technology toward ensuring a smooth implementation in the organisations is critical and hence CIOs need to be well-prepared in advance for the possible challenges ahead.

 

CIOMajlis, an initiative by Smartworld, a joint venture between Etisalat and Dubai South, aims to contribute to realising the vision of the National Innovative Strategy with the goal of making the UAE the world’s most innovative country by 2021.

 

Rob, in his presentation, told the CIO Majlis members that companies should design and establish an internal control system for ongoing monitoring, understand changes required to native systems such as Oracle and SAP and any separate transaction systems and assess the use of VAT determination (tax) engines.

 

“The IT department is the backbone of a compliant model while implementing VAT and it should consider the key areas such as tax relevant master data, tax condition rules, invoicing and documentation, intercompany transactions, reporting, maintenance of tax master data and codes,” Rob said.

 

For effective management of VAT and scenario planning as well as to identify capability to cater for VAT, companies need to have high level understanding of the capabilities of their existing systems such as the ERP. The process involves automated tax control framework embedded in regular business processes, and data and analytics for vendor management and fraud detection.

 

Abdulqader Obaid Ali, Chief Executive Officer, Smartworld, said: “Financial systems will rightfully be the focus, but getting integration right will also be important for compliance. As we understand, mapping and optimising the impacted transactions will serve as a baseline activity for every VAT implementation. It is here at the integration level that the CIOs assume importance. I therefore urge the CIOs to keep abreast of the situation for their companies to facilitate a smooth adaptation of the compliance system.”

 

Ahmed Al Mulla, Chairman of CIOMajlis, who is also Senior Vice President, IT, Emirates Global Aluminium, said: “There is need for accurate integration of data, audit trail information and VAT treatment between transaction systems, such as POS, procurement, and financial systems such as ERP. The role of CIOs is paramount on these fronts,” said.

 

Planned VAT implementation can help businesses reduce complexity and cost in managing VAT throughout the implementation, to ongoing reporting, data and analytics phase. Naturally there are a number of challenges that still need to be addressed, but VAT will definitely help the GCC countries in economic diversification.

 

By Shereen Shabnam

 

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