The VAT is coming for sure. But when? Initially, the plan was for all GCC countries to introduce VAT at exactly the same time, i.e., January 1, 2018. However, more flexibility was necessary as it became clear that not all countries were fully prepared and, thus, able to do so. The VAT Framework Agreement allows for a one-year window to introduce VAT: between January 2018 and January 2019. That provided each country with the opportunity to start with VAT at an appropriate time given the particular situation in a country.
Introducing a new tax is a complicated matter. This is especially true for a region characterised by limited taxation. Because of this governments, businesses and advisors lack experience with tax which is an additional complicating factor. The government needs to create a completely new department to administer the VAT able not only to perform accounting tasks related to the tax but also able to answer sometimes difficult questions from the public and develop compliance and ruling policies. Businesses already have a functioning accounting department and accounting systems but these need to be able to capture VAT accurately. Key personnel need to be trained in VAT at appropriate knowledge levels, a management structure needs to be designed to ensure that the VAT is managed effectively with clearly defined responsibilities and controls. All business transactions (sales and procurement) must be analysed to determine the correct VAT treatment. ERP systems need to be modified so they can calculate VAT correctly, produce correct invoices, and provide the correct information required to file a correct VAT return. The transition to VAT will prove to be a complex and time-consuming process.
The IMF has opined that the four remaining GCC countries to introduce VAT may not be ready before the middle or the end of 2019. Understandably, Omani companies are reluctant preparing for VAT as the Oman law has not been released yet and the date of introduction of the tax is uncertain (although the Omani government has indicated January 1, 2019). Indeed, to thoroughly prepare businesses will need the text of the Law and Regulation. However, this does not mean that it is wise to postpone preparing for VAT until the time the law is published. Based on our experience in other countries that introduced VAT, such as Malaysia and Australia, businesses will likely need up to 12 months to fully prepare for the new tax.
It is unlikely that so much time will be available after the law has been published, given that KSA and the UAE published their laws six months before the start date of the tax. That should give reason for concern. However, the good news is that for most industries the GCC VAT Framework Agreement provides sufficient basis to undertake most of the work prior to the publication of the Oman VAT Law. In particular, tax determination of all transactions (inputs and outputs), the assessment of the administrative organisation for the purpose of designing a VAT Control Framework and assessing the current accounting system for its capability to capture VAT can be started now. What is unknown at this moment, can be filled in once the law is published. We recommend that Omani businesses start looking at the potential impact of VAT as soon as possible to prevent running short of time.
(Dr Robert F van Brederode is a tax lawyer, scholar, and practitioner concentrating in the area of global indirect tax with over 30 years of experience advising a diverse portfolio of clients including some of the largest Fortune 500 firms. Currently he is advisor at Crowe Horwath Oman. Robert published dozens of journal articles and is the author of eight books on VAT and Financial Services.)
Dr Robert F van Brederode