Thomson Reuters hosted a seminar about the introduction of value added tax (VAT) in Gulf Cooperation Council (GCC). As many businesses assess the impact that VAT will have on their commercial operations, the seminar debated the VAT framework and compliance challenges. The event was attended by financial professionals and tax consultants. In the introductory panel, Dr. Nasser Saidi, President, Nasser Saidi & Associates, gave an overview of the VAT landscape in the GCC. "MENA taxation is very low compared to the rest of the world. As a percentage of GDP, the average tax take across the region is about 13%, much lower than other emerging markets. And if you go back to the 1990s and look at the total tax take, tax revenues in most emerging markets have been growing, whereas across the MENA region this isn't the case." Tax efficiency was a key theme of the session. "The tax efficiency ratio across countries in the Middle East is very low compared to emerging markets." Dr. Saidi highlighted the example of New Zealand's VAT system as one which is particularly efficient. "If you want to create a VAT system from scratch, look at New Zealand, who have very few exemptions. Taxes always introduce distortions and when you do that for things like education and health, you introduce distortions into these markets, so you're better off having very few exemptions." Dr. Saidi highlighted several areas that governments should prioritize when implementing VAT. "You need diversified, balanced sources of taxation, so that when the economy grows you are able to generate revenue and so that you have buoyancy in the tax system." He also emphasized the need to use technology to capture what is happening in the digital economy. "Tax systems that we currently have are very much based on traditional goods and services. But something like 30% of the goods and services we consume today didn't exist twenty years ago, so what you need is a tax system that is flexible and which can capture what is happening in the digital economy." In the second session, Rob Dalla Costa, Director, VAT Leader, KPMG, Lower Gulf, emphasized the need for businesses to be prepared for VAT. "VAT is not meant to be a cost to business. But if you are not prepared, if you don't have systems and processes in place to recover the VAT on your business inputs, VAT will be a cost to your business." The staggered introduction of VAT across the region was also highlighted as a risk by De La Costa. "It's going to complicate your business. Because if I supply a good, it could be supplied to someone in the UAE, where it would be taxable, it could be supplied to someone in the UK, which would make an import, which is taxable at the rate of zero. But if you're supplying that same good to Qatar, and Qatar hasn't yet introduced VAT, then it would be taxable in the UAE. So your IT system needs to be aware of where the customer is and have the appropriate code," he said. Gop Menon, Head of Finance for Thomson Reuters Middle East and North Africa (MENA), emphasized the need for businesses to view the issue holistically, saying: "This isn't just a finance problem." In his session, Menon gave his insights on implementing VAT in Egypt, highlighting the challenges and complexities when dealing with new tax systems. "Particularly when dealing with this region, where the framework is coming in new, it's not going to be all clear and all perfect from day one. Whilst the governments here can learn from the experience of other regions, there will be a lot of nuances in this area. In our experience in Egypt, some of our services fell into grey areas and it took us time to understand whether they were in or out of scope." Stewart Nivision, Head of Indirect Tax, Thomson Reuters MENA, gave an overview of a technical implementation and urged businesses to begin planning for VAT now. "I believe that leadership needs to take this as an opportunity, and use it as a platform to build a roadmap for the next five years. Not just to solve the VAT problem, but also as an opportunity to improve processes across the board." Clare McColl, VAT Partner, KPMG, Lower Gulf, re-iterated the need for businesses to be looking seriously at VAT now. "What you should be doing right now is mapping and classifying all the transactions within your organization. The cash flow implications of VAT need to be considered. How quickly can you recover the VAT you're paying to your suppliers? Whilst for some it might be a cash flow burden, if you structure it efficiently, you can actually a gain cash flow advantage out of this." She added: "There is a lot to think about, and a lot to do. The key to success will be project planning over the next year and the earlier that businesses start to understand VAT impact and to plan how to manage it effectively, the better." The final session focused on technological solutions for managing VAT. Pierre Arman, Market Development Leader, Tax and Accounting, Thomson Reuters MENA, said: "Today, technology allows you to automate basically the entire VAT process. You don't need a system for every country; one system can do it all. This will allow you to save time and cost and to be more efficient in how you deal with VAT." This low taxation combined with what Dr. Saidi termed the ‘New Normal' of the oil market, which has been depressed since 2014, has resulted in a need for governments to find new revenue streams. Dr. Saidi also noted that whilst the main form of taxation in the region is excise tax, the share of excise taxes as a percentage of GDP has been falling across almost all countries in the region, compared to OCD countries, where excise taxes have been rising. "[Excise taxes] are a largely untapped resource which can be very useful for social objectives or environmental objectives through taxes such as congestion charges or tobacco taxes. However, if you look at countries such as Morocco, you can see that they have a large number of these taxes, but they yield very low revenue, which means the cost of collection is often greater than the value they provide."
