Taxpayers in the UAE and Saudi Arabia will have to brace themselves for official audits next year as the roll-out of the 5 percent VAT since January 1 this year overcomes a number of hurdles and teething problems.
Now that regulations are in place, taxpayers are expected to prepare for audits by the UAE’s Federal Tax Authority and Saudi Arabia’s General Authority of Zakat and Tax next year. It is an exercise that will test their resources and the accuracy of record-keeping as well as the filing of tax returns.
The two states were the first countries in the Arabian Gulf to introduce the levy following the implementation of excise taxes on energy and fizzy drinks and cigarettes in 2017.
“In the UAE and Saudi Arabia, next year there will be a lot of full-scale tax audit activity undertaken on businesses,” said David Stevens, GCC VAT
Implementation Partner at advisory EY.
“These businesses need to prepare themselves to be able to completely justify all of their numbers, all of their data, all of their statements, all of their payments, all of their invoices, all of their record-keeping, and all various other aspects of their VAT compliance that will come under increased scrutiny by the authorities as we go into the second year of operation.”
GCC countries are introducing taxes to cope with the crash in Brent oil prices from more than $115 per barrel in mid-2014 to around $50 per barrel currently.
The International Monetary Fund estimated that the introduction of VAT in the region could generate new revenue of 1.5 to 3 percent of non-oil GDP.
Bahrain will be the third country to introduce the levy on January 1, 2019, but it plans to introduce a more complex system that has a lot of items exempt from VAT amid a lack of clarity over many aspects of the regulations.
Meanwhile, in the UAE and Saudi Arabia, the tax authorities – which toiled in 2018 to clarify ambiguities about VAT rules and regulations – will need to continue this exercise into 2019 as they begin to conduct tax audits.
“The authorities will be launching audit activity while there are some areas with unclarified rules, so they won’t know how to enforce them,” said Mr. Stevens.
“The pressure falls on the authorities to resolve any unsettled, non-clarified, or disputed areas of interpretation. They need those clarified so that auditors can do their job and taxpayers need that to make sure they are fully compliant.”
Companies in 2018 struggled to be compliant for various reasons. Some waited too long, some did not expect the levies to be introduced, while others changed their processes to comply, but their work was dogged by mistakes.