- Today's weather in Bahrain
- Today in Bahrain
- Australia 260 all out as Starc falls early
- Saudi’s first Comic-Con fest cited for ‘violation’
- Police deal with 546 violations
- Tenders awarded for various projects
- Indian author to arrive in Bahrain today
- Driver jailed for traffic violations
- GPIC takes part in Garden Show
- Israel shuts Jerusalem school accused of Hamas links
GCC corporates face multiple VAT challenges
By: dt news , Posted on 17-Feb-2017
The plan to introduce value-added tax in Gulf Cooperation Council member states could create operational risks for companies and put pressure on EBITDA and cash flows in some industries as markets adjust, Fitch Ratings says. Collecting and remitting VAT to the government will have notable set-up and compliance costs. Businesses with VAT-exempt goods and highly competitive sectors could find themselves, rather than customers, taking on this additional cost.
VAT implementation could be as soon as early 2018 according to media reports, which would create a very tight timetable in a region with little history of taxation of any sort. This will introduce greater uncertainty and operational challenges for GCC corporates than for companies in other regions with established tax cultures that have introduced VAT or reformed their tax systems. However we expect GCC governments to recognise these challenges and show a degree of flexibility during the initial implementation.
Companies will have to replace or update IT systems, implement new procedures and train staff before VAT is introduced. This will be particularly burdensome as it will add to costs when low oil prices and lacklustre economic growth are weighing on corporate performance, particularly for SMEs. Companies involved in supplying goods and services between GCC members, or those operating within or between free zones, are likely to face additional complexities, as agreements between individual GCC members could vary.
In theory, VAT is ultimately paid by the end consumer, so if a company does not fall into that category the planned 5% rate should not have a direct impact on financial performance. Some goods or services may be assigned a zero rate, meaning the business will charge VAT at 0% on sales and will be able to reclaim VAT on purchases. But if the goods or services a company sells are VAT exempt then they will not be able to reclaim VAT on purchases and will have to bear this cost themselves. So it will be important to know the VAT treatment for sectors like healthcare, and education, which could face profit margin erosion if they are VAT exempt and are unable to increase prices to compensate.
Even with no VAT exemption, highly competitive sectors or those with thin margins could face a cash flow burden from having to meet the cost of paying VAT on purchases before it can be reclaimed. Fierce competition in some sectors may also put pressure on companies to cut pre-tax prices and absorb some of the cost themselves. This is most likely in sectors like telecommunications, consultancy and contracting and will vary by country.
The need to renegotiate previously agreed contracts and conditions with customers would pose additional challenges in some industries. The introduction of VAT, alongside other government initiatives to cut spending, could also reduce disposable incomes, weakening demand in more discretionary corporate sectors.
We believe the lack of any significant historical taxation means it will take time for companies to fully pass on costs, but that they will be able to do so eventually. The main long-term risk from the introduction of VAT is therefore the potential for errors in collecting and accounting for the tax that could leave companies liable for the cost themselves. This impact will not be clear until each member state establishes its own national legislation to enact the agreement, which could make the timetable even tighter.
Many wonder about the best way to run an organisation, deliver a service or build a product, this is an endless question that has puzzled many entrepreneurs, founders and executives as they pursued a market-lasting product or service while substantial amounts of money were given to consultants and professionals to aid...Read More
As it is known, every Country has its own flag that represents its entity. The flag’s design and colours reflect the Country’s history and vision and its essence. For the dear readers’ information, the Republic of Tunisia has the oldest flag (1831), while the Republic of Iraq has the relatively...Read More
With the heavy reliance in the Internet, endless threats have come to life; many of them are very serious that can have serious financial implications to companies and governments, not to mention the impact on national security. As a result, many countries have started enforcing laws to ensure cyber security and...Read More
Valentine’s Day is fast-approaching and the story goes that if Cupid hits you with his golden arrow you’ll fall madly in love. And who doesn’t want to fall madly in love? But there are other actors taking aim at you on Valentine’s Day whose arrows you need to avoid as the outcomes aren’t...Read More
I could not believe the beautiful and heartwarming scene before my eyes! The scene was filled with feelings of love, care and loyalty. I hope that I will be able to convey the story with all meanings of appreciation and value. One evening, on a weekend, I was out with my family in the neighborhood, when I...Read More
In our current time, most companies will have employees of a mix of all nationalities and backgrounds. The international mixture of employees helps to create a strong and healthy organizations benefiting from the strength of the cosmopolitan environment. However, as a result these companies create a unique...Read More
Far too often, the world views Africa through the prism of problems. When I look to Africa, I see a continent of hope, promise and vast potential. I am committed to building on those strengths and establishing a higher platform of cooperation between the United Nations and the leaders and people of...Read More
An unstable global economy, fraught with geopolitical uncertainty, left many wondering if retailers in the Middle East and North Africa (MENA) would struggle to turn a profit in 2016. Yet, just as challenges have come to characterize the region’s business landscape, so too have a wealth of technological advances...Read More
Technology has revolutionized the entire business world. It has made the potential and imaginative possibilities a reality, up for grasp to anyone who deploys technologies in an innovative way. It has empowered enterprises to provide unique services and products with the ability to satisfy the most difficult...Read More