As the VAT implementation has been done well from the outset, we are witnessing the VAT becoming a part of the everyday operations across business landscape with very minimal additional ongoing costs.
The proposed impact of VAT was visualised to be on a grander scale, especially for small businesses. But then again, it was all a matter of the market hype.
Small businesses or any business for that matter, would only be affected if they were not organised and do not have the right controls in place to be able to comply for the transition. The key factor is to keep a set of accounts – which has not been a trending practice with small businesses prior to VAT.
Today, we are witnessing businesses changing their core operations, financial management and book-keeping, technology and human resource mix. In hindsight, the operational processes for which businesses conduct on a daily basis is becoming more organised with the VAT implementation.
Lack of familiarity with VAT is also a significant obstacle as 2018 has become a boom time for VAT specialists. As it has been a challenge which is bringing accountants and other financial advisers to the fore front.
The job market has seen a great hike as many vacancies are being posted for tax and accountancy professionals who can advise companies or work with the government. Currently, there is a gap in the market for VAT-savvy entrepreneurs with the right skillsets to steer companies through the many changes required.
It is a given, with the new VAT laws, your business essentially has an extra function to perform – which comes with an unavoidable set of admin and implementation costs.
In order to make sure you are collecting VAT correctly, complying with the new laws, and able to do your new quarterly VAT reporting, you’ll need to update IT and internal systems, train your employees in VAT processes, and potentially even employ an accounting specialist to help with the transition.
Aside from having a significant cash flow impact on some companies, VAT will be charged at each stage of production and distribution, which can be problematic if you have more than one business entity handling the same product or service.
To avoid being taxed on transfers made between different stages, in other words paying VAT twice, you would need to bring them together. If you are a larger corporation with multiple entities, you would need to consider a more significant restructuring to avoid VAT leakage.
As nothing is set in stone, and companies are apprehensive that the VAT rate might rise in the future. We are not just talking about the 5% rate that might be affected, while exempt categories are likely to remain exempt, zero-rated products may also see an increase. This prospect creates uncertainty for both businesses and consumers, who will naturally be worried about increased costs being passed on to them.
At the same time, let us not oversee the volume of benefits which are to be gained from VAT, both for the UAE as a whole and for businesses and future profitability levels.
The new tax is expected to bring forth a significant new revenue stream to the UAE government.
We will also see the effects of the revenue going into creating a more stable economy, which in turn will have a positive indirect effect on local businesses. Not only is the revenue going stabilize the economy, it will also lead to improving the country’s infrastructure, at the same making it easier and less expensive to do business in the UAE.
If at any point there is an ounce of uncertainty on how the VAT system will specifically impact your business, or whether you are operating within the lines of the regulation – seek the advice of a registered consultant.
Overall, at a basic level, it is well worth the efforts in keeping an up-to-date implementation strategy to ensure proper records are kept in place. At the end, a guided roadmap will help your business function smoothly as possible during the transition stage.
Arshad Kazi, Money Master
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