Muscat: A section of Oman’s corporate sector is preparing the groundwork for creating systems and procedures to levy a value added tax (VAT) after the government announces new regulations and begins the registration process.
As a first step, some large companies are floating initial tenders to select consultants to conduct the initial work on the value added tax, and have begun forming VAT steering committees to monitor developments, Pratik Shah, resident partner and VAT Expert at W T S Dhruva Consultants, told Times of Oman. W T S Dhruva Consultants has won a series of VAT mandates from major Gulf Cooperation Council (GCC) businesses across the retail, real estate, insurance, hospitality and energy sectors.
However, he said that businesses in Oman are still waiting for an announcement from the Oman government, which is expected soon. Formal announcements have been made by the United Arab Emirates (UAE) and Saudi Arabia — two front runners in the Gulf region — on their roadmap for putting in place a VAT.
Oman, along with other GCC countries, is planning to levy a 5 per cent VAT, which is an indirect tax levied at every stage of economic activity in the supply chain.
“One can sense that few Omani firms have initiated the planning for VAT, and there are many to follow soon, after the ministry releases an update on VAT,” noted Shah.
“The implementation of the new taxation system has its own technical and administrative challenges, and with the short time frame available, Oman may implement it in early 2018 or by mid-2018,” added Shah.
Oman, along with other GCC countries, has signed a VAT Framework Treaty which formalises their commitment to put in place a VAT. Given that the UAE and KSA have decided to begin collecting the VAT, as of January 1, 2018, Oman should begin collecting their VAT next year. “According to sources, Oman’s drafting of the VAT law is in the finalisation stage,” Shah said. Additionally, the Government has taken initiatives to reduce their dependency on oil revenues by diversifying and mobilising resources from other avenues, such as changes to income tax and taxation on tobacco.
Shah added that a great degree of preparation is required so that the company does not falter in their growth momentum. However, planning and preparation is linked to provisions stipulated in the draft law – which has yet to be issued in Oman. “Nonetheless, Omani companies can take a cue from the common VAT agreement to understand the various concepts of VAT and determine the business areas and functions that could be impacted. This would enable these businesses to evaluate how much time is required to prepare.”
The first step is to carry out an impact assessment, which means that the company needs to classify transactions as taxable or non-taxable. Then, the company can examine how VAT will impact different business functions, such as accounting and finance, supply chain and logistics, marketing and sales, information technology and other support functions (legal, human resource and administration).
The second step is to configure VAT requirements into the IT system, he added.
The third step is to educate those employees involved in VAT compliance on VAT requirements and how to operate the IT system
The fourth step is to test the IT system to evaluate whether the desired results can be achieved from the systems as planned.
The fifth step is to regularly verify the financial records being maintained from a VAT perspective after the implementation of the VAT, so that compliances are in order.
“Also, it would be pertinent for the company to revisit their business model so that it continues to maintain a competitive edge in the market,” added Shah. Though VAT may be thought of as a challenge, it has its unique opportunities.
Ideally, the preparation process should begin 6-8 months before the VAT is implemented in Oman, depending on the size and operations of the company.
According to information available in the public domain, revenues from VAT will be in excess of $1 billion per annum. In addition to this, it is to be noted that the total VAT revenue in the GCC will vary according to each individual country’s consumption habits and VAT laws. However, the potential revenue from a 5 per cent VAT rate ranges from 1.2-2.1 per cent of GDP, depending on the country, according to data from the International Monetary Fund (IMF).