(MENAFN- Arab Times) The GCC Ministers of Finance held an extraordinary meeting on Thursday June 16 in Jeddah and approved in principle the Value Added Tax (VAT) and Excise Tax treaties. Some administrative matters still need to be resolved, notably with regards to the tax collection mechanism related to intra-GCC trade. The GCC Committee has been tasked to provide its recommendation by the end of summer in view of the formal announcement of the treaties.
The Excise Tax and VAT treaties constitute the common framework for the introduction of these taxes in the GCC which is expected to occur by 1st of January 2017 and 1st of January 2018, respectively. The treaties will form the basis for the issuance of national VAT and Excise Tax legislation by each GCC member State. Commenting on this Jeanine Daou, Middle East Indirect Taxes Partner, 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." Upon the ratification of the treaties, each Member State will need to issue its own national VAT and Excise Tax legislation based on the agreed common principles. This will entail the issuance of national VAT and Excise Tax laws along with the implementing regulations in accordance with each Member State's national legislative process. This should happen ahead of the expected go live date, allowing sufficient time for businesses to get ready.
In any case businesses 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. It is the right time 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.
It is also essential to ensure the right systems and processes are in place to apply the tax correctly and generate the required reporting and documentation. The formal announcement of the GCC common VAT and Excise Tax treaties is expected now in the last quarter of this year and this 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.
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