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Fri 29 Apr 2016 01:32 AM

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UAE retail firms face challenges amid VAT launch in 2018

KPMG's tax chief in the UAE says retail sector will be particularly affected by introduction of value-added tax

UAE retail firms face challenges amid VAT launch in 2018

Family businesses and retail firms in the UAE will need to analyse their operating models and supply chains to assess the impact of proposed tax regimes ahead of the expected implementation of value added tax in 2018, it has been claimed.

KPMG's tax chief in the UAE said the retail sector will be particularly impacted by the introduction of value-added tax.

The UAE is expected to implement 5 percent VAT from January 1, 2018, with 150 food items, health and education exempted but countries will have until January 1 2019 to implement the tax.

Nilesh Ashar, partner – head of tax, KPMG in the UAE, told a seminar: “While VAT will affect all organisations across the GCC, it will have a particularly significant impact on retail businesses in the region, especially the food and beverage segment, where there could be a mix of exempt, zero rated and non-exempt items.”

Ashar added: “As soon as the VAT law is announced, companies will need to assess the impact across the business, including operating models and IT systems, as well as training their front and back office staff. Companies should start – now – identifying and allocating resources to implement changes to their business models and processes.”  

The International Monetary Fund and the World Bank have held on-going talks with Gulf nations since early 2000 to persuade them to reduce subsidies and boost revenues through alternative sources such as a federal corporate tax or VAT.

KPMG said companies will have to ensure business functions, such as finance, legal and IT, are fully compliant with VAT laws, and change their operating models and supply chains to manage profit margins. 

“Businesses may choose to pass on the entire burden of VAT cost to consumers or they may try to absorb some or the entire VAT burden – at least for the first year,” added Ashok Hariharan, head of tax at KPMG Lower Gulf.

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