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· VAT, being a tax on every transaction involving goods and services, will have a significant impact on retail firms
· Firms need to revisit supply chain arrangements and upgrade points of sale systems
· Decision needs to be taken on how much of the VAT costs could be passed on to consumers
Dubai: 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 the coming years, as discussed at a KPMG Tax conference today at the Capitol Club.
KPMG in the UAE held a retail-focused VAT seminar for clients and industry stakeholders to offer insights into how VAT might affect supply chain arrangements, financial systems, transition periods, end customer pricing and other relevant areas. Retail businesses in the UAE - and across the GCC - must assess the impact of VAT, not only to be compliant with the proposed regime, but also to identify and exploit efficiencies when reviewing their business models. Over 50 key stakeholders from the retail community attended the event.
Other key recommendations include continually monitoring tax developments and updates, assessing the financial impact of VAT on their business models, internally reviewing financial systems to assess overall tax readiness, upgrading points of sale systems to capture VAT-related information, determining intra-group transactions and dependencies and re-visiting contract clauses dealing with price and taxes.
"While VAT will affect all organizations 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," said Nilesh Ashar, Partner - Head of Tax, KPMG in the UAE.
Kok Shang Lam, a partner with KPMG in Singapore an expert in Goods and Services Tax (GST) implementation in Malaysia, explained: "VAT is not a tax on profit; it's a tax on transactions. It impacts your supply chain end-to-end. Every transaction going through the business - be it inter-company, with employees or end customers - is liable to VAT. As a result, VAT can significantly affect cash flow. Also, VAT management is not just the responsibility of the in-house finance team. The taxing decision is determined when a transaction is triggered, and that usually happens outside the finance team."
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. Earlier this year, UAE Ministry of Finance officials were quoted in the media as saying that the government aimed to introduce a 5% VAT regime from January 2018, and also outlined a policy to exempt over 90 food items, as well as the healthcare and education sectors.
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," said Ashok Hariharan, Head of Tax at KPMG Lower Gulf.
Retail firms with centralised cross-GCC procurement systems will need to calculate how VAT - which is intended to be a GCC tax - might impact their businesses, particularly if the tax is not introduced simultaneously across the GCC.
Companies may have to upgrade their enterprise resource planning and financial systems to map all elements of the tax chain, including collecting VAT from customers, recording VAT input credit on purchases, agreeing exemptions and rebates, and paying collected VAT revenue to the government.
"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," concludes Ashar.
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© Press Release 2016
