VAT is coming to Oman. Are you ready?

Energy Saturday 06/May/2017 21:54 PM
By: Times News Service
VAT is coming to Oman. Are you ready?

Muscat: Traders in Oman face paying up to OMR40,000 to change to a value added tax (VAT) system ahead of its introduction here, according to analysts.
GCC countries have drafted a collective VAT framework which was announced by Saudi Arabia last week. All other countries in the council will follow suit and an announcement is expected soon by the Oman government on what will be subject to VAT and what will be exempt.
Experts who compiled Deloitte’s Indirect Tax Client Survey state that costs could start from OMR10,000 and climb higher than OMR40,000 depending on the size of the firm and Oman VAT regulations. Training of staff will take up a large chunk of the bill.
And a spokesman from KPMG warned business to act now. Tax experts from Deloitte surveyed businesses in Malaysia - which introduced a Goods and Sales Tax in 2015 - and said they expect Omani overheads to be higher.
“Given that the general cost of living and procuring services in Malaysia, where we conducted the survey, is significantly lower than that in the Middle East, we’d expect Omani businesses to be facing much higher costs than this in reality,” Kate Bacon, Manager, Indirect Tax at Deloitte ME said.
Nearly 28 per cent of the survey respondents in Malaysia said that it took more than OMR 40,000 to implement Goods and Sales Tax (GST) systems, a tax similar to VAT, in their organisation.
According to business leaders here, only a few companies are ready, but VAT implementation has been included in budgets.
“While we are waiting for an official announcement from the government, we have set aside a budget of OMR50,000 for implementation of VAT. Seventy per cent of this would go in upgrading IT systems and the remaining would go for staff training,” Darren Tong, CEO at Renna Mobile, said.
“We have to allocate VAT implementation budgets for the year 2018 which is expected to be not less than 10% of our total cost outlay. We have plans for staff training and systems updates for VAT. The tax is inevitable so companies must begin to prepare instead of reacting slowly and finding themselves in trouble later,” Raj Kumar Ahmed, CEO of Al Khalij Group said.
“The ministry has yet to announce anything so the best we can do now is staff training, which is very expensive. We have dedicated more than OMR50,000 for VAT systems alone,” an official from a leading automotive dealer stated.
Smaller companies would appear to be lagging behind.
“I am waiting for further details before commencing or just hoping it will not happen any time soon as I don’t have such a big amount to implement VAT compliant systems,” admitted one managing director in Muscat .
Saudi Arabia recently released the GCC VAT framework that is understood to be signed by all six GCC countries including Oman, paving the way for local regulations to be announced by respective governments.
“The publishing will give businesses comfort that the VAT and excise systems are progressing according to plan. In particular, it also helps them understand the VAT framework in the GCC countries and means they can move forward with preparations while waiting for local implementing laws in each country. This is a significant step and provides businesses with certainty,” Deloitte’s Justin Whitehouse added.
Deloitte has also launched a ‘VAT Guide’ mobile application and video guides to promote better understanding of impact of VAT on businesses. According to officials, early implementation can save thousands of rials in terms of fines.
KPMG spokesman Ashok Hariharan said: “Once the agreement is ratified, each member state can issue its own local law consistent with the framework and then implement VAT. The framework paves the way for implementation, allowing for a basic rate of VAT of five per cent with certain supplies of goods and services zero rated or VAT exempt.”
He added that the Ministry of Finance is in the process of drafting the legislation and preparing its systems to gear up for VAT and that the mandatory VAT registration threshold is expected to be OMR38,500.
“VAT will impact all businesses in Oman, either directly or indirectly. The framework provides more than enough information to begin planning for VAT. Businesses should be planning and preparing now, carefully reviewing their processes to understand VAT’s impact and to determine what needs to be done to be fully compliant. Clear communication will be key. “Time is short and will pass quickly. Be prepared. Consult. Consider a budget and secure the resources required for practical implementation,” he said.
According to Deloitte, a business will need to submit a VAT return every quarter containing accurate information on the amount of VAT it has charged to customers and paid to suppliers, and it must be able to rely on the information which is produced by its finance systems. The Omani tax authorities will conduct audits of businesses to ensure their VAT compliance, and if businesses are not able to produce a reliable audit trail establishing how it has arrived at its VAT return figures then it could face assessments and penalties. Non-compliance due to delays in implementing the systems can cost businesses even more.
“Around the world it is common for penalties for non-compliance to be 100 per cent of the error, and if negligence is involved it’s rare to be ‘let off’ and the penalties get worse. Because it is a self assessed tax all the responsibility sits with the business and it becomes another risk issue for the business to manage.
“In Europe it is taken extremely serious at board level and the tax authorities frequently put personal responsibility on the officers of the company,” Justin Whitehouse, Indirect Tax Leader at Deloitte added.
Similar to IT systems, a business must be able to rely on its staff to have knowledge of how their actions impact the business’ VAT position and be confident that employees are competent.
“There are many different ways of training staff, from sourcing online e-learning programs to raising the level of VAT awareness among staff in general, to engaging in face-to-face training sessions for key members of the team,” Bacon said.