It goes without saying that many governments around the globe view the VAT or Value Added Tax as a far more effective means of raising taxes than systems such as direct and/or sales taxes. The GCC is one of the latest groups of nations that is taking up this model (along with India and China, which also began using VAT in the recent past).
Interestingly enough, the proposed rate for the VAT in the GCC is lower than the global average (it is 5%), and it is believed that this introductory rate is to avoid any major disruptions to business, while also keeping the general public more comfortable with the new tax. Can they increase it? Absolutely, and Egypt stands as an example having introduced VAT in 2016 and raised it in 2017 from 13% to 14%.
This is good news for those concerned about the GCC’s preparedness for implementing the VAT in 2018. After all, if it is determined that a higher rate is required, there are already other models that were increased almost immediately after launch.
The question of overall preparedness lingers, though as it is only the Kingdoms of Saudi Arabia and Bahrain who have indicated that they will be ready to begin collecting VAT on January 1 of next year. The UAE has an online registration process slated to open within 90 days of VAT introduction, but it is believed that the remaining GCC countries may be unable to implement due to their various legislative processes.
As reported in one whitepaper, “Each states domestic VAT legislation will require the incorporation of the key principles set out in the GCC Unified VAT Framework Agreement,” and some countries have also indicated that they will have VAT exemptions and a zero rate.
Of course, as the report also went on to note, “The GCC States face the challenge of not only incorporating VAT into their domestic legislation but also communicating the nuances of VAT to the general public.” And perhaps that is the greater challenge as evidenced by other regions seeking to implement VAT. Malaysia, for example decried inadequate technologies necessary for calculating and reporting VAT.
Businesses in the GCC have been aware of the need to ensure their IT capabilities as well as the best methods for replacing any existing systems. The new tax is going to prove a challenge, but several GCC countries have already expressed themselves ready, and offer a model for neighbors to follow.
Bna.com. (2017). Is the Gulf Cooperation Council Ready for VAT in 2018?. [online] Available at:https://www.bna.com/gulf-cooperation-council-n73014450995/ [Accessed 14 Aug. 2017].