VAT and Businesses: What are the Impacts?


UAE has implemented VAT from January 1, 2018. Let us look into what impacts VAT implementation may cause on businesses operating from this region. Businesses in this region have been operating in a low tax environment and now VAT compliance for all their operations and financial systems is mandatory to function error free in this new tax regime. Though the situation calls for a lot of adjustment in all business operations including pricing, skills required and IT infrastructure, the new tax system will bring about a lot of positive inputs to every business and economic development of the region.
Why VAT?
There are clear cut reasons for the implementation of VAT in UAE and GCC countries. The economy of the region was greatly based on the oil and gas prices but now the revenues from these sources have come down due to fall in price and global competition. Hence, the situation calls for government authorities to look for alternate revenue sources for developmental activities and to keep pace with same developmental activities that have been followed in the region. Though tax is a new system in GCC, it will help the governments to find required fund for their developmental activities. At the same time, the implementation of VAT calls for a lot of adjustments for SMEs in their internal and external operations.
What is VAT?
Value Added Tax (VAT) is a tax on consumption of goods and services. GCC countries have agreed the VAT rate as 5%. Compared to the rate of VAT in some of the other countries, the rate here is the lowest. VAT is added to product and services at each stage of the supply chain. Value of raw cotton increases when in it is transformed to fine fabric and then to a shirt. Certain products and services are exempted from tax and these products may vary in member countries of GCC. Exports to outside of GCC countries are rated as zero. It means that the business can claim refund for the same.
What are the implications of VAT on my business?
You are eligible and have to compulsorily register for VAT if your business annual turnover exceeds Dhs 375,000. Registering for VAT will have its own advantages and disadvantages for your business. VAT is not a business expense or profit. It is cost of products ultimately paid by the end user. Businesses collect VAT and submit to the tax authorities. In this way, businesses aide government level developmental activities and keep economy of the region vibrant and active.
At the same time, businesses need to comply with VAT laws to control all levels of their operations including pricing, cashflow, invoicing, accounting, supply chain management etc. Businesses not complying with VAT will incur penalties.
How can my business VAT compliant?
Now is the time for business to be VAT ready. Invest small amount of money for VAT compliant accounting software to function all your business operations fully as per VAT laws. GCC VAT PRO software is high profile VAT compliant software that enables VAT collection, record keeping, reporting process and other related activities error free and fully compliant with VAT laws. Your activities within your business, with the government and consumers run smoothly by subscribing to our highly innovative software. VAT compliant accounting software is the need of the hour because by the end of this year, all the GCC countries will implement VAT.

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