With the exception of Kuwait, it is expected that during 2021, Qatar and Oman join their GCC counterparts the UAE, Saudi, and Bahrain in introducing VAT.
Meanwhile, COVID-19 has not only been a wrecker of revenues in the GCC, but also a clear and present danger for businesses dealing with default-related VAT issues that unless addressed could place organizations at risk.
Let’s first look at the VAT revenue side.
The UAE’s Ministry of Finance (MoF) said that from the beginning of January until the end of August 2020, the total value-added tax (VAT) revenue amounted to $3.15 billion.
Meanwhile, the country’s total excise tax revenue amounted to about $518 million, noting a 47% increase in comparison to the same period in 2019.
Saeed Rashid Al Yateem, Assistant Under-Secretary of Resource and Budget Sector at MoF, noted that 30% of VAT revenues will be distributed to the federal government and 70% to local government and that there are no plans at the moment to raise VAT to more than 5%.
The tax revenues generated in2019 amounted to about $8.44 bn, growing by 7% over 2018.
The Government of the Kingdom of Saudi Arabia (KSA) had announced that the 5% VAT rate would increase to 15%, effective July 1st, 2020.
The increase comes as part of additional measures taken by the KSA government in response to the economic impact of the COVID-19 crisis.
Saudi’s dual shock of the coronavirus pandemic and a crash in oil prices has led to more than $72 bn in stimulus spending.
Saudi posted a budget deficit of $10.87 billion in Q3 this year, more than half its deficit in the previous quarter.
Still, despite a 30% yearly drop in oil revenues in the third quarter to $25 bn, total revenues increased by 4% year-on-year to $58 bn, partly thanks to tax increases.
Overall non-oil revenues jumped by 63% year-on-year.
Saudi government spending was up 7% on an annual basis to $69 bn and Riyadh plans to cut spending next year to $267 bn, as the economy returns to growth and management of the coronavirus crisis improves, according to a recent budget statement.
Bahrain generated $663 million last year from VAT up by 265 mn compared with budget estimates of $398 mn.
From 1 January 2020 onwards, all businesses and individuals conducting a business fell under the VAT system if their annual turnover of $99,450 was realized.GCC countries left to introduce VAT
The UAE, Saudi Arabia, and Bahrain have all implemented VAT since signing the GCC VAT Framework in 2016.
GCC countries left to implement VAT
The current position in each of the states that have not yet introduced VAT is as follows:
VAT in Qatar
While there have been no official announcements recently by Qatar in relation to the implementation of VAT, the state is currently expected to implement VAT in the second or third quarter of 2021.
Qatar’s General Tax Authority (GTA) is continuing with its ongoing preparations including the introduction of the state’s new tax administration system, Dhareeba.
VAT in Oman
Oman is set to be the fourth GCC state to implement VAT since the signing of the GCC VAT Agreement at the end of 2016, with an effective date of 16 April 2021.
The Oman VAT Law was published in the official gazette on 18 October, triggering a 180-day countdown to the effective joining date.
VAT in Kuwait
The Kuwait parliament’s support for tax reform appears to be somewhat lacking. However, it is still expected to implement VAT by 2022, according to a March 2020 report by the International Monetary Fund (IMF).
COVID-19 and VAT
Better management of the compliance cycle of VAT can go a long way in helping businesses navigate COVID-19 successfully, tax experts from international law firm Pinsent Masons LLP said during a recent webinar hosted by the Dubai Chamber of Commerce and Industry.
The session was moderated by Joanne Clarke, Tax Director (VAT), Pinsent Masons LLP, who is an international VAT advisor specializing in technical advisory, compliance, and disputes.
During the webinar, Clarke stressed on the importance of improving VAT cash flows and minimizing capital costs associated with the tax. Businesses should actively seek to identify and mitigate real VAT costs that impact their bottom line, she noted.
Clarke advised businesses to be cautious when dealing with transactions and activities driven by COVID-19 pressures such as contract defaults, corporate restructuring, bad debts, as these can have a VAT impact that can be significant and negative if not managed correctly.