GCC Businesses could face multiple VAT challenges in the short-run

Dubai: The VAT implementation in GCC states could create operational risks for businesses and put pressure on Ebitda [earnings before income tax, depreciation, and amortization} and cash flows in some industries as markets adjust, according to analysts and rating agencies.

VAT implementation  2018, which would make a tight timetable in an area with the little history of tax collection of any kind. This will present more prominent vulnerability and operational difficulties for GCC corporates than for organizations in different areas with setting up charge societies that have presented VAT or improved their duty frameworks. Experts said they anticipate that GCC governments will perceive these difficulties and demonstrate a level of adaptability amid the underlying execution.

"Businesses across GCC will have to replace or update IT systems, actualize new methodology and prepare staff before VAT is presented. This will be particularly burdensome as it will add to costs when low oil prices and lackluster economic growth are weighing on corporate performance, particularly for SMEs.,” Fitch Ratings said in a recent note.

Companies required in providing goods and services between GCC members, or those working inside or between free zones, are probably going to confront extra complexities, as understandings between individual GCC individuals could fluctuate.

Profit margin erosion


In principle, VAT is eventually paid by the end consumer, so if a business does not fall into that category the planned 5 % rate should not have a direct impact on financial performance. A few products or services may be assigned a zero rate, which means the business will charge no VAT at on deals and will have the capacity to recover VAT on buys. But if the goods or services a business sells are VAT exempt then they will not be able to reclaim VAT on purchases and will have to bear this price themselves.

So it will be important to know the VAT treatment for sectors like education, and health care, which could face profit margin erosion if they are VAT exempt and are unable to increase cost to compensate

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