VAT in the UAE: How technology can ease your taxing pain

Using paper for VAT invoices will require administrative work - imagine all those papers piling up over time.

Value added tax. That's nothing new - at least to the majority of people roaming Earth. As a matter of fact, EY's VAT guide for 2017 shows there are 120 countries worldwide that impose this levy, or 62 per cent of the 195 recognised nations. But on that same list, six countries have three asterisks beside them, denoting 'expected, not confirmed' rates.

Of course, those countries are the ones in the GCC. And we're quite sure you know what's going to happen come January 1, 2018.

For us living and working in the UAE, this is unchartered territory; we've enjoyed tax-free services and salaries for as long as we can remember, and the implementation of VAT is something most of us would fret upon.

For businesses, it's the start of an entirely new era. A good number still have no idea how it's going to pan out, which is the reason some may be scrambling at this moment. One doesn't need to look further: India's recent rollout of its Goods and Services Tax - another form of VAT - created a bit of a brouhaha, remember?

But there's always a solution to everything. And we're lucky enough to be in an age where there's a very viable aid in going through this: technology.

VAT has been in existence since the 1950s, and Germany and France were the first countries to implement it. They were able to successfully execute it with pens, papers and typewriters; why can't we do so with all our advanced stuff today?

How it affects compliance
VAT currently exists in different variations, being implemented and reported in a whole lot of ways. This means, according to PricewaterhouseCoopers, that the administrative compliance burden varies hugely between countries.

Ergo, it can be time-consuming and costly for firms to comply with local requirements in the countries in which they operate.

Electronic reporting systems are increasingly being used and favoured by tax authorities, including real-time reporting systems. Electronic platforms are also advised for financial data gathering.

"The advent of technological developments such as blockchain may allow tax authorities in the future to meet objectives that go beyond revenue raising," PwC VAT leader Frederic Wersand says. "This is due to the ability to deliver real-time, reliable information to a wide group of people."

Blockchain - the platform in which bitcoin was founded - is indeed gaining ground. Wersand adds that it's the "next technology to collect tax information and identify risk patterns".

In layman's terms, it's akin to ordering food with your smartphone - faster, more convenient and secure.

A separate PwC study revealed that it takes roughly 106 hours for companies across the globe to comply with VAT; a decade ago, it was 130 hours. And the decrease is because of the advancements in business IT solutions and online systems that help with VAT compliance.

And while time-saving systems indeed exist, VAT compliance widely varies: in Bulgaria, it takes 165 hours, while in Luxembourg, it takes only 22 hours.

In the UAE, it's expected that the implementation of VAT will be a hassle-free undertaking: the government is known for streamlining its laws and is more than eager to help companies with its regulations. It sounds like a tall order for the general business community, but trust the leadership to do everything to make it work smoothly.

"As with all new systems, the implementation of VAT will have an impact on the way businesses, consumers and consultants, as well as authorities, use it until it becomes a part of our daily routine," Anthony Peter, director of corporate communications and operations division at Panasonic Marketing Middle East and Africa, told Khaleej Times.

Beware of complexities
The five per cent levy about to be imposed in the GCC is one of the lowest - if not the lowest - in the world. To put that into perspective, most countries in Europe have an average of about 20 per cent.

Which makes Peter's argument sensible: once everything settles in, businesses might not even feel the extra work that needs to be done.
Markus Susilo, VAT services team leader at Crowe Horwath, has a little caution though.

"IT services are among the most VAT-complex businesses. In such a complex arrangement, businesses in this industry should look closer into the correct method of determining the place of taxation, the taxable amount and the due date of paying VAT," he told Khaleej Times.

"To complicate this further, services and software delivered electronically have different treatment for VAT compared to the physical delivery or on a physical medium, such as a CD-ROM [disc]."

"Thus, although VAT may seem straightforward for IT companies - as they are not an exempt sector - it has its own pecularities. If these pecularities are not taken into account, this may result in tax penalties."

Information website VAT in UAE argues the need for e-invoicing and e-archiving solutions, and with good reason. To issue VAT invoices as an evidence of a sales transaction is one of the basic implications of its implementation. Firms will be allowed to issue invoices using the traditional method, but this paper-based method also comes with challenges, such as accounting codification, invoice validation, typing errors and disputes arising from incorrect data.

It says electronic invoices instead of paper can "resolve [these] issues by introducing full automation and transparency in terms of invoice circulation between sellers/buyers and tax authorities."

Furthermore, using paper for VAT invoices will require administrative work and additional costs, such as for space rental (imagine all those papers pile up over time). An electronic archiving system seems more viable: it's reasonable and is easily accessible when needed.

Which leads us to the next point: security. VAT in UAE argues that it is "very difficult" for an electronic archiving solution to provide "extreme or proper security measures".

"So, if someone says that the documents or information stored in the electronic archive are safer than a hard copy in the traditional archive, then that person is lying," it adds.

Therefore, it says, proper data security can only be achieved by opting for e-archive solutions, which is capable of incorporating access control and time-stamping.

"The introduction of VAT is likely to have implications across business functions... companies need to prepare by reviewing existing tax systems and building a plan for applying changes needed to conform to upcoming regulation," Danyal Tirmazi, engagement manager at Sunstream Research & Consulting, said.

The study further adds that robust documentation, processes and internal controls need to be established. In some cases, a complete system overhaul will be required, while others may just need some recalibration. In either case, "resources will need to be trained on the new systems until full adoption".

Well, let's not discount robots doing VAT work in the future as well.

- alvin@khaleejtimes.com