Since some time, there are some discussions in Gulf Countries (GCC) about some possible alternatives to increase the national revenues through new sources other than oil & gas, the long sole source of revenue all over GCC. In this connection, it seems that there is an agreement now to impose the Value Added Tax (VAT), in all Gulf countries.
VAT in GCC, as proposed, will be in the range of 5% to be applicable in all countries most likely from next year beginning. Legally speaking, any sort of tax must be imposed by law, otherwise it will be of no legal base and people may not abide. Law is imperative mechanism with punishment teeth for violators when it comes to collection of money as tax.
Due to this legal prerequisite, a special national “local” law must be promulgated in each Gulf country to impose VAT. The application and imposition of taxes and or levies, as we know, is an alien new policy in the GCC however it seems that time has come to have a new look & a new strategy in the region.
VAT is a kind of consumption tax, as opposed to other kinds of tax such as production \ income tax from companies. VAT is to be paid by consumers when opting to consume the taxable(s). This tax, is almost imposed in many countries, including all EU countries, since long time and in some countries it reaches 10% if not more. Herein, GCC needs to benefit from other related global experience and to start from where others end. This will make the issue more easier.
The national “local” law, to regulate VAT, must contain certain exemptions regarding application and implementation. Based on the exemptions, VAT will not be applicable on certain products and services. This includes, inter alia, agricultural raw products, animal products, health medical products, education facilities, banking & financial services, insurance services… For the exempted products & services there are other types of tax apart from VAT which apply on consumables only. How much VAT you pay depends on you, also, how much you consume on taxable items is your choice …
As a matter of law, all exemptions are to be provided for in the law as it falls within the jurisdiction of each country to decide on exemptions based on the merits of each case & as they deem appropriate.
VAT is to be implemented at the different stages of processing till its final production and collection by the consumer. Due to this, qualified accountants are eagerly needed to take care at such different stages. This could cause an additional cost on the companies as they need to recruit capable accountants for such job.
To be ready for VAT, the competent authorities in Gulf Countries are to prepare the necessary formats \ schedules for the VAT and train the employees to be able to track and follow their task in the most effective suitable way. Taxation management, including VAT, is in need of prolonged hectic administrative procedures. This requires qualified personnel to implement and confirm necessary compliance… It would be important to say the law requires that only registered companies are to apply VAT. Non-registered companies are not involved in VAT and they have no connection whatsoever with VAT. Eligibility of companies for registration will be covered in the law to be issued in Bahrain. Therefore, you are advised to know if your company is eligible to register and apply VAT or not. Based on the outcome, you need to prepare yourself & your company for the necessary course of action.
Also, based on a unified decision, all Gulf Countries GCC will very soon issue a law to impose “Excise Duty – Excise Tax” on certain items that could be dangerous to health and or the community such as tobacco, liquors, betting & gambling, energy & soft drinks, gasoline, roads and pass-ways … etc. Excise duty is not part of and is very different from VAT and all other forms of tax.
By all means, let’s prepare our homework & lets be ready for necessary accurate compliance in due course…
Dr. AbdelGadir Warsama Ghalib
LEGAL COUNSEL
Email: awghalib@hotmail.com
