From 1st January 2018, it is expected that VAT has been implemented in UAE at the rate of 5 percent while purchasing goods and services. Some challenges faced by UAE at the time of implementing VAT are as follows:-
The supply chain is one biggest challenge faced while implementing VAT in UAE as it is an indirect tax and levied on the whole supply chain. Consumers are the end cycle of supply chain and pay tax at the time of purchasing goods and services. Companies who are dealing business with UAE and GCC members also have to pay tax. Consumers (Taxpayers), Businesses (Shareholders), Government (Tax collectors ) and Consultant (Tax Experts) are four important stakeholders which come under VAT framework. But the question is who will be affected the most by the tax system.
Regulatory authorities didn’t disclose the VAT framework system is another challenge faced by UAE. VAT is implemented from 1st January 2018, yet it is not clear who will have to pay and how much tax at the time of purchasing goods and services. There is also the lack of planning and domestic legislation in implementing VAT framework agreement. The corporate sector gives the insufficient time to prepare VAT laws. Member states cannot finalize their national VAT laws until they finalize and adopt the GCC VAT Framework Agreement.
Hospitality industry must have to take measurable actions in VAT framework agreement. Yet authorities didn’t disclose VAT laws but by comparing with other countries, it is clear that Airlines definitely will charge high prices for their customers.
Companies across the GCC will have to replace or update their IT (Information Technology) systems. Companies must have to implement new procedures in their day to day activities and will have to train their staff before VAT rollout.
VAT has been implemented first time in UAE. Regulatory authorities and experts will need to schedule seminars and presentations across the UAE about how the taxation system work and how it is beneficial for all people. Through presentations and seminars, UAE inhabitants will become aware of how VAT laws are beneficial for the society. VAT is a new concept in UAE. So the six GCC countries must have to recruit talented staff and trained existing ones.
Business enterprise will face challenges while implementing VAT in UAE. VAT will affect business enterprises in GCC directly or indirectly. Business enterprises will require well-qualified workforce for the collection of tax and execute payment to the tax authorities either quarterly or on a monthly basis. First and foremost, the business enterprise must have to plan and analyze their products or services from the VAT point of view.
Excise duties and VAT have to change the preference of individuals, customers, companies, and countries. It is important that GCC will apply by keeping in mind, otherwise, there is a risk that smuggling will increase.
Craig Richardson, Partner and Head of Tax and Corporate Services at KPMG in Qatar stated that VAT will also affect the government sector. It is necessary for the government sector to ensure the collection of tax either quarterly or monthly basis. The tax authorities will also require to process funds on regular basis and will be provided IT systems for filing tax returns online and communicate with taxpayers online.