Dubai, UAE: In a meeting held on June 16, 2016 in Jeddah, Saudi Arabia, the GCC Ministers of Finance have reportedly approved in principle the Value Added Tax (VAT) and Excise Tax treaties, according to a press release from PricewaterhouseCoopers (PwC). The press release has said that some administrative matters still needed to be resolved, notably with regards to the tax collection mechanism related to intra-GCC trade. The GCC Committee, it added, has been tasked to provide its recommendation by the end of summer in view of the formal announcement of the treaties.

The VAT and Excise Tax treaties, the press release informed, upon ratification, will form the basis for the issuance of national VAT and Excise Tax legislation by each GCC Member State based on the agreed common principles, and added that the introduction of the taxes is expected to occur by January 1, 2017 and January 1, 2018, respectively.

The press release further said that the new laws, along with the implementing regulations, will be in accordance with each Member State’s national legislative process, which would allow sufficient time for businesses to get ready before the laws come into effect.

In any case, businesses, the press release said, need to start preparing in advance to be able to comply with the new tax obligations, including charging, collecting and paying VAT and Excise Tax to the Tax Authority in a timely manner. The press release highlighted that it is the right time for businesses to start creating awareness and increase knowledge throughout the organisation, as well as start assessing the potential impacts of the new taxes on the business, including impact on margins and cash flow, in addition to ensuring that the right systems and processes are in place to apply the tax correctly and generate the required reporting and documentation.

PwC said that the formal announcement of the common VAT and Excise Tax treaties for the GCC region is expected in the last quarter of 2016, which will pave the way for the adoption of the new tax systems by GCC Member States by the expected dates. Businesses should start adopting VAT and Excise Tax compliant strategies now to ensure a smooth transition at a later stage, added PwC.

Commenting on the new development, Jeanine Daou, Partner and Middle East Indirect Taxes Leader, said: “The introduction of VAT and Excise Tax constitute an important policy reform aiming to help GCC Governments achieve medium to long term social and economic policy goals, and reduce reliance on hydrocarbon revenues. Approval of the treaties is an important development as it sets out common principles that will guide the application of VAT and Excise Tax at a national level by each individual Member State. Companies should take action now, if they have not already, to prepare for the implementation of the new tax systems and be ready by go-live date.”