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GCC needs flexible tax system

GCC needs flexible tax system

DOHA: 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.”