Suppliers may get VAT relief on unpaid government invoices

Parliament’s Financial and Economic Affairs Committee is studying a proposal that could spare suppliers working with government bodies from paying value-added tax (VAT) on invoices before they receive payment.

The proposal seeks to address a cash flow problem faced by companies required to pay VAT upon invoice issuance, even when payment from a government entity is delayed for months.

Submitted by MP Hassan Ebrahim and four other MPs, the proposal would amend Article 13 of the Value Added Tax Law, which was issued by Decree-Law No. 48 of 2018 and amended by Law No. 33 of 2021.

It would add a provision stating that, for goods and services supplied to government bodies, the date of supply would be treated as the date the supplier actually receives the amount due.

According to the proposal, the current system can leave suppliers paying tax on money that has not yet reached their bank accounts.

MP Hassan Ebrahim said the problem is particularly clear in dealings with government bodies, where invoice payments may take different and sometimes lengthy periods.

He said some payments may be delayed for three to six months, while others may take more than a year in certain cases.

That leaves companies carrying a tax obligation before receiving the cash needed to cover it.

MP Ebrahim said requiring a supplier or service provider to pay VAT before receiving the actual payment negatively affects cash flow.

He said this can limit a company’s ability to meet financial and tax commitments on time, especially when the delay involves large invoices or repeated government contracts.

Under the proposed amendment, the actual date of payment, rather than the invoice issue date, would determine when VAT becomes due on supplies made to government entities.

The MPs behind the proposal said the change would better align tax obligations with the actual receipt of funds.

They said it would reduce the financial burden on companies while they wait for their dues, and prevent suppliers from financing VAT from their own resources before collecting payment for goods or services already delivered.

The explanatory memorandum attached to the proposal said the amendment seeks to solve a practical problem facing suppliers and service providers dealing with government bodies.

It said linking VAT liability to actual payment would better reflect the financial reality of businesses waiting to be paid.