GCC countries sign common value added tax framework agreement

Muscat: All GCC countries have signed the much-delayed unified value added tax (VAT) framework agreement, a statement issued by the KPMG said.
Bahrain was the last country among the six-member Gulf Cooperation Council (GCC) bloc to sign the common framework agreement, it added. The GCC common VAT framework will form the basis for the national value added tax legislation to be issued in each GCC country. While the VAT framework only sets out key VAT principles, once ratified, it clears the way for each GCC member to release its own national VAT laws based on those principles.
The framework paves the way for a five per cent basic rate of VAT while certain goods and services can be zero rated or exempted from VAT.
Value added tax, which is a tax on consumption and is levied at each stage in the chain of production, will be introduced in GCC countries in the beginning of 2018. The UAE has indicated its intention to implement VAT with effect from January 1, 2018.
“We anticipate that the VAT framework will shortly be made public,” the KPMG report said.
According to an earlier report, the Saudi Arabian cabinet has approved the VAT framework.
All businesses should carefully review their processes to understand the impact of VAT and to determine what needs to be done to be fully compliant with the new laws. Clear communication is essential to ensure effective compliance.
VAT will impact all businesses in the GCC, either directly or indirectly and, as a transaction-based tax, will impact all aspects of business. “Finance, legal, IT, sales, marketing and even human resource(divisions) must understand the impact of VAT on their functioning and determine whether the introduction of VAT will result in additional costs, which could be actual or cash flow or compliance-related,” noted KPMG.
In fact, businesses should consider any contracts going beyond January 1, 2018 to protect their position.
The need to reduce dependence on oil has become even more critical and structured reforms are essential to promote diversification and non-oil sector growth in order to create jobs for the growing workforce.
The average VAT revenue, collected by businesses on behalf of the VAT administration, is expected to account for 1.3 per cent of the gross domestic product of the GCC states, according to an IMF estimate in 2012.
For levying tax under VAT regime, products and services are divided into three broad categories—products with standard rates, zero rates and exempted supplies. The zero rates are generally applicable to basic food items, exports, medicines and medical equipment. Also, the common exempted categories are healthcare, education, domestic passenger transport and residential dwellings. Companies will have to be registered with the VAT administration.