UAE retail firms face challenges for VAT launch in 2018

 

Earlier this year it was confirmed that value added tax (VAT) is set to be introduced in the UAE on January 1st 2018. The introduction of VAT will have widespread effects throughout the UAE, none more so than the retail industry.

KPMG's tax chief in the UAE said the retail sector will be particularly impacted by the introduction of value-added tax. Retail firms and family business are urged to analyse their operating models and supply chains to access the impact and diverse strategies to best accommodate the new tax.

Nilesh Ashar, partner – head of tax, KPMG in the UAE, told a seminar: “While VAT will affect all organisations across the GCC, it will have a particularly significant impact on retail businesses in the region, especially the food and beverage segment, where there could be a mix of exempt, zero rated and non-exempt items.”

Ashar added: “As soon as the VAT law is announced, companies will need to assess the impact across the business, including operating models and IT systems, as well as training their front and back office staff. Companies should start now in identifying and allocating resources to implement changes to their business models and processes.”

The International Monetary Fund and the World Bank have held on-going talks with Gulf nations since early 2000 to persuade them to reduce subsidies and boost revenues through alternative sources such as a federal corporate tax or VAT.

KPMG said companies will have to ensure business functions, such as finance, legal and IT, are fully compliant with VAT laws, and change their operating models and supply chains to manage profit margins. “Businesses may choose to pass on the entire burden of VAT cost to consumers or they may try to absorb some or the entire VAT burden – at least for the first year,” added Ashok Hariharan, head of tax at KPMG Lower Gulf.

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