Page 58 - Focus Group

such a measure is taken by the the increased VAT complexity as to be paid to the VAT clauses to
Government. highlighted above. ensure that they are broad based
to cover the rate increase. This is
Learnings from Saudi VAT • Transitional Diligence especially valid in case of lump
Change Organizations would have to sum contracts where the contract
exercise the usual transitional value is expressed in a lump sum
• Temporary Arbitrage diligence in case of VAT rate figure. Any impact would lead
Opportunity
changes as elaborated below: to substantial impact on the
The planned VAT rate increase in • Price changes preparation contract profitability
KSA is likely to create a temporary I am reminded of Sadhguru’s
arbitrage in Bahrain and UAE, This is very important for the address to the ICAI Dubai Chapter
which could possibly see KSA end consumer pricing and during his visit in 2017, where he
residents making weekend trips especially where the pricing is queried the high numbers of ICAI
to Bahrain and UAE for their high inclusive and in case of exempt members in UAE considering the
value purchases. This might help supplies. Great care would relative lack of taxation in the
the UAE and Bahrain economy in need to be taken to ensure region. With the current business
the short term. In my view as with that market competitiveness challenges and increased
all arbitrage equilibrium will be and organization profitability compliance environment, I
sought in the medium/long term. would need to be maintained. am sure that he would have a
There would be measures by the This would require to build different opinion when he visits
respective GCC Governments to scenarios of differential VAT rate us the next time!
mitigate the significant arbitrage, changes and the pricing strategy
which is not sustainable in the to be adopted in such market
markets in such proximity. circumstances.

• Increased complexity in the • Systems and Process
VAT regime capabilities

The Saudi VAT increase is The organization would need
likely to bring about additional to check that the VAT rate can
complexity in the VAT regime. As be easily facilitated by master
per the current GAZT guidelines, changes and the rates have not
there are different treatments been hard coded during the
based on the dates: initial VAT implementation stage.
This would need to be examined
• Before 11 May 20 CA Girish Chand
across POS, front end billing
• Between 11 May 20 and 30 systems, intermediate and back
Jun 20 end systems. Also the tax related
documentation like tax invoices,
• From 1 Jul 20
credit notes formats would have
This would mean that the systems to be checked for compatibility
would have to be configured to accommodate the VAT
for VAT applicability based on rate changes. This would be
the period for a single product. considered a simple step however
We also cannot rule out the I have seen several organizations
possibility of different rates for where the flexibility has not been
products which may be clarified built in the systems.
by the GAZT in the coming days.

It is worthwhile for UAE • Contractual conditions
organizations to review whether
their systems are geared to handle Special emphasis would have
Disclaimer:
This article and/or write ups and/or any of its content shall not be treated as opinion and/or advice in any circumstances of
the author(s) and/ or the Chapter. Reader’s to apply their best judgement in the best interest of their requirement and should
seek a formal opinion on any issue.

58 TAX JOURNAL 2020 The Institute of Chartered Accountants of India (Dubai) Chapter NPIO