Ashok Hariharan, Partner and Head of Tax at KPMG in the Lower Gulf discussed in detail the challenges Omani companies are likely to face with the introduction of VAT and how they can start preparation right away.
“Many companies are waiting for the VAT Law to be published in Oman to start their preparations. In our opinion a large portion of the work can be carried out beforehand, which will help in the quick and smooth implementation of VAT when the time comes,” said Hariharan.
“To date, we have supported over 100 businesses in the UAE to get ready for VAT, and based on this experience we can confidently say that as much as 40 per cent of the workload can be carried out in advance,” he added.
The GCC states have worked together to develop a broad framework for the introduction of VAT. This agreement sets out the underlying principles of VAT laws across the six member countries. The states retain some flexibility, such as how to handle healthcare, education and the free zones for VAT purposes. While VAT is not intended to be a tax on business, collecting the tax and remitting it to the government could involve significant compliance costs for companies, and could also have implications on their cash flow.
KPMG believes that companies need to evaluate and assess the impact on various departments and functions in the run up to the VAT implementation. The supply chain needs to be reviewed to gauge its preparedness. VAT costs and accounting obligations need to be identified so they can be addressed. Adapting to VAT will also mean updating or upgrading Enterprise Resource Planning (ERP) and IT systems and interfaces to correctly capture input and output VAT. Companies therefore need to account for these costs and accordingly allocate resources.
“From experience we know that the minimum time required for successful implementation is generally six to eight months, depending on the size of the company and the complexity of the supply chain. For example, one of the steps companies can undertake now is to map supply chain processes and transaction flows for VAT requirements. Then, when the law is published, businesses will be ready to feed the requirements into strategic implementation,” Hariharan concluded.