VAT hits cash flow of struggling businesses

Muscat: Business owners are currently experiencing financial difficulties on Value-Added-Tax (VAT) compliances saying they are constantly struggling to meet operating expenses to stay afloat with increased costs.

Oman introduced VAT last year to reduce fiscal deficits but business companies say the decision came at a time when the country is still feeling the hardship of the pandemic that caused a global financial crisis.

“We were hard hit by the pandemic because of a series of lockdowns and before we could recover, the VAT compliance is now onto us. It takes away our profits at a time when we are struggling with high operational costs because of the Ukraine War’s related prices increase. We would like the government to consider these challenges we are facing now,” Ghalib Al-Kharusi, owner of Automobile Repatriation Services, told Times of Oman.

Other business owners say that delayed payments from government’s contracts cause a considerable ‘pain’ to the payment of the VAT. “We have to pay the VAT on time but we cannot get our payments for the government’s contracts on time. It takes more than six months to get paid when the fiscal year is well over while at the same we have VAT inspectors knocking at our doors,” Abdulrahim Al-Hajri, a computer network service owner, said.

Some business owners say they might be forced to close down because of late payments while at the same times are required to pay VAT.

“When you have no cash at hand because of very late payments, how can you have the money left to pay for the VAT and at the same time pay for operating expenses like salaries, rent and bills? Something must be done about this,” Yahya Al Hooti, construction materials supplier, told Times of Oman.

But VAT also takes away cash flow from the market circulation, analysts say.

 “VAT affects the production process and there will be an increase in the cost that will reduce the availability of resources. Eventually, it will reduce the ability to produce a large output of finished goods. This will affect the cash flow of the company,” Mohammed Al Shizawi, an independent analysts, told Times of Oman. Shizawi also says that since the VAT was introduced in Oman, inflation rate has gone up considerably.

“Inflation in Oman was already at 3 percent before the VAT was introduced. Now it is at 8 percent because everything has gone up in price. This has introduced an extra burden to consumers which force them to cut on spending. If consumers cut on spending, this takes money away from the market,” Shizawi added.