GCC deal flow unaffected by introduction of VAT

The recent introduction of 5 per cent Value Added Tax (VAT) in the UAE and KSA has not impacted deal flow in the GCC as the tax rate is relatively low compared to global markets. Nevertheless, many companies found themselves unprepared for the January 1 implementation date and are now scrambling to ensure they become tax compliant to avoid penalties.
This was the consensus during accountancy and finance body ICAEW’s Corporate Finance Faculty roundtable about the impact of VAT on deals in the GCC.
ICAEW members and guests gathered in Dubai recently to discuss the impact the introduction of VAT has had on deals in the GCC. The event was held at the Capital Club in the Dubai International Financial Centre (DIFC).
Panellists included Julie Bronzi, VAT Senior Manager, PWC; Dr Shuja Ali, General Partner, Saham Investment Management; Qasim Aslam, Partner Banking and Finance and Head of Islamic Finance — Middle East, Dentons; Amjad Ahmad, Founder and Managing Partner, Precinct Partners; and Thomas Vanhee, Partner, Aurifer. The discussion was moderated by Samir Assaad, Founder and Managing Director, SAS Capital Management.
Following an introduction by Matthew Benson, Partner Transaction Support Leader, Europe, Middle East, India and Africa (EMEIA), EY, panellists agreed that the flow of deals in the GCC wasn’t impacted by the introduction of VAT but there are uncertainties regarding the items subject to the tax. In this case, speakers recommended to follow best practices to maintain tax compliance.
Panellists also agreed that there was a sentiment of denial towards VAT across businesses which affected their ability to be ready on time. Businesses are now embracing VAT and reviewing their business processes and IT systems.
Michael Armstrong, FCA and ICAEW Regional Director for the Middle East, Africa and South Asia (MEASA), said: “We are living in a very exciting period. There is no doubt that VAT implementation will improve business conditions and create more stable economies over the long run.”
Speakers highlighted that not all businesses are fortunate enough to have access to consultants with VAT experience. Smaller businesses with no access to experienced tax advice are struggling with the compliance processes.
According to the panel, in the month of January some businesses experienced a negative consumer reaction to the introduction of VAT. However, this type of sociological behaviour would only occur in the short term and that in the long-term, VAT will help in creating a more stable economy.
Prior to implementation, there were concerns about how severe the impact of VAT would be on cash flow for businesses. At any given point businesses may owe the government large sums of money or be waiting to receive a refund. These amounts can really affect a business’s financial planning.
Panellists agreed that the construction, real estate and export industries are sectors that are significantly affected by VAT. Due to the long tenure of construction projects, businesses with existing contracts hadn’t factored in VAT when planning and found it difficult to pass the cost of the tax onto their customers.
Speakers explained that goods which are imported and then exported from the UAE now need to go through new customs and VAT clearance processes. Many businesses involved in this type of trade have struggled to understand all the rules and the relevant tax rates on certain goods.
Panellists applauded the UAE government’s efforts to provide guidance to make the VAT implementation process as easy as possible for all stakeholders.