Following the historic decision by GCC member states to adopt value added tax (VAT) on January 1st 2018, regional businesses are scrambling to determine exactly what the tax will mean for them.
For regional CFOs, the introduction of VAT within the GCC marks the beginning of a new era in financial reporting, and therefore a fundamental shift in the finance function. Preparation for the implementation of VAT is underway, with finance officers across the Middle East looking to determine how they will be dealing with the development.
And there is no doubt that the vast majority of finance officers will be affected – if not all of them. The recently published results of the 2016 Middle East CFO Survey show that 93 percent of CFOs expect to see some level of impact on their business with the introduction of VAT.
Almost half of CFOs expressed that their business has only a “minimal understanding” of the range of impacts associated with the introduction of VAT. This could prove potentially disastrous for businesses where the CFO is unwilling to take appropriate measures to prepare for VAT. This includes not only the research necessary to understand all of its implications, but also the ability to educate others within the business of how it will affect them.
As the stewards of financial compliance, CFOs are personally responsible for ensuring that the effects of VAT are fully understood throughout the business. However, an astonishing 81 percent of CFOs have not yet incorporated VAT considerations into their strategic planning processes, highlighting both how recent this change is, and how unprepared businesses are to deal with it.
Members of the C-suite in certain regional organisations have expressed their disapproval of the introduction of VAT. These include the co-founder and CEO of Deutsche Technic Automotive Workshop, who said “For smaller companies like ours, it will make a deep impact on the numbers. One of the reasons why most expats like myself moved out of the UK was due to the tax. It didn’t allow SMEs to expand.”
The importance of preparing thoroughly for the introduction of VAT is being highlighted by finance professionals across the region.
As noted by Finbarr Sexton, indirect tax leader for the Middle East and North Africa at EY, “If VAT is not applied correctly, it may become an additional cost to the business. Further, con-compliance with tax laws attracts severe penalties. All businesses must undertake a review of their current contracts to determine if VAT has been appropriately addressed.”