Value added tax expected to push cost of UAE, Saudi imports in Oman

Business Saturday 21/October/2017 17:50 PM
By: Times News Service
Value added tax expected to push cost of UAE, Saudi imports in Oman

Muscat: Imports from the United Arab Emirates (UAE) and Saudi Arabia, which are going to introduce value added tax (VAT) on January 1, 2018, will cost more for Omani companies during the interim period until the Sultanate introduces VAT, according to a VAT expert.
Omani companies have to pay VAT, while the same cannot recovered by local firms until the VAT law is enacted in the country.
“That needs to be clarified, whether countries without VAT legislation can be exempted from value added tax during the interim period. (Otherwise) it is going to create confusion and lead to issues,” said Andy Ilsley, Director for VAT at RSM UK.
“The cost of Omani companies importing from the UAE (and Saudi Arabia) will increase by 5 per cent,” he added.
Earlier, the plan was to introduce VAT in all GCC states in January 2018. But that is not going to be the case since a draft regulation on the value added tax is not yet announced by the Sultanate.
Ilsley said it takes 12 months for Omani companies to prepare themselves for the VAT regime, which is an indirect tax levied from consumers. “The accounting systems need to be VAT friendly, employees need to be trained and the companies need to understand their supply chain and customers.”
Talking about the impact of VAT on prices, he said it will depend on whether retailers are willing to absorb a portion of the levy in their margin or pass on the entire 5 per cent to consumers. Some products are price sensitive, while others are not too price sensitive.
The corporate sector will incur a cost to build systems to introduce VAT, which is mainly in the implementation stage. “The cost will depend on the size of the company and training needs and it varies from company to company,” added George Mathew, managing partner of RSM Oman.
Large companies have already started planning for VAT implementation in the Sultanate, taking a cue from neighbouring UAE.
Ilsley further said VAT is being seen as a major source of revenue for GCC states, including Oman.
“In U.K., VAT is the second largest revenue source for the government, after income tax. It is two-and-a-half times higher than revenue generated from corporate tax,” he said, adding; “It is very cheap to collect and administer.”
UAE and Saudi Arabia are going to levy VAT on fuel. “I am certainly not aware of any plan to exempt it,” he said.
However, the financial sector, insurance, healthcare, education and transport of goods are generally exempted from VAT.
Oman is expected to announce the VAT law sometime in 2018, noted RSM Oman’s Mathew.