Dubai, UAE: The initial months of 2018 could likely see the introduction of value added tax (VAT) on goods and services in GCC states. The announcement has also brought to the fore many questions regarding its implementation, benefits and the drawbacks associated with it. Robert Dalla Costa, VAT Leader at KPMG Lower Gulf, highlights on one such issue that businesses will likely encounter – cash flow problems.

According to information available on the UAE Ministry of Finance website, “…Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods/services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government”, which means businesses will have to wait a certain period to reclaim the tax charges from the government. However, businesses may experience an issue of cash flow during this period. “If you’re a business owner, it doesn’t matter how much VAT you get charged, because you’ll be able to recover it. But it is going to affect cash flow, since you’ll have to pay the tax charge and then wait for maybe three months or more before you can file your return and get the money back.”

Dalla Costa is, however, optimistic that the impact should be minimal as the proposed VAT is five per cent.

He says that business will not face a major issue if they handle their cash flow correctly and are well-prepared in advance. “The main challenge for businesses is to get their systems ready, because if they are not ready, then VAT would be a cost to them,” he stresses. Additionally, he recommends that businesses must ensure that their suppliers are compliant and can give them the proper documentation they will need to recover the VAT cost.

Dalla Costa says that ultimately, every entity in the industry must be educated about VAT and the process for things to run smoothly.