The storm had already claimed the lives of at least two people in China's Hainan and 16 people in the Philippines
While some retailers may pass only a smaller proportion of the increased cost on to their customers and suffer the increase themselves in an effort to retain market share, others may, as an initial marketing ploy, also offer to cover the full amount of the VAT in order to keep volume of sales at a reasonable level during the settling-in period, according to Bruce Hamilton, Deloitte Middle East consumer business industry VAT leader.
Deloitte, which is issuing series of whitepapers titled 'VAT in the GCC - Insights by Industry', said the progressive implementation of VAT throughout the GCC from January 1, 2018 marks the start of some of the "most exciting, dramatic and far-reaching socio-economic changes in the region since the discovery of oil reserves in commercial quantities during the 1960s."
"The time does appear to be upon us to start looking in detail at the potential impacts it will have on businesses, whether from an organisational, operational, commercial or financial perspective," said Justin Whitehouse, Deloitte Middle East VAT leader.
"UAE financial services firms will be directly impacted and must analyse the impact of these developments on their businesses," said Emilio Pera, head of financial services at KPMG in the UAE.
Pera said GCC companies must ensure they are preparing adequately for the VAT era that will affect the financial services sector and a wide range of business operations and services.
Rob Dalla Costa, VAT Leader at KPMG, said the introduction of any new tax regime like VAT is a major change and it is going to take some time for organisations to adapt. "Businesses want to be compliant and will be looking to the government for guidance and support on the requirements. Typically, most financial services are treated as exempt under a VAT regime and this brings with it significant compliance costs and embedded VAT costs which are typically passed onto customers."
At the same time, financial services firms with international operations must prepare for the OECD's Base Erosion and Profit Shifting initiative, which makes international tax (including transfer pricing) more transparent and substantive, Costa said.
Stuart Halstead, Deloitte Middle East financial and insurance industries VAT leader, said there are many challenges associated with taxing the financial and insurance services. "They are perceived to be difficult to tax; the "value" for VAT purposes, particularly in the context of margin-based transactions, is almost impossible to determine accurately and consistently on a transaction-by-transaction basis. As a result, VAT exemption is often a preferred policy approach," he said.
A Deloitte report said although some of those operating in Saudi Arabia, Qatar, Oman and Kuwait pay corporate income tax or Zakat, VAT requires a very different perspective. Being a transactional tax, its impact across business operations, including product pricing, technology, training and others, can be significant, it said.
"A business issue that retailers need to ponder is what will happen on the night of December 31, 2017, and the same applies to automotives," said George Campbell, Deloitte Middle East automotive industry VAT leader. "The answer to this is that any self-respecting, budget-conscious shopper will consider perhaps accelerating a purchase in order to attempt to avoid the VAT cost."
According to the Deloitte VAT whitepaper, one operational issue will be how dealers respond to a likely spike in demand in the run-up to the introduction of VAT. The other side of this is that there is likely to be a glut of second-hand cars coming onto the market.
Dealers will need to make sure that customers are not disappointed when trying to make faster purchasing decisions than normal. Stocking the right vehicles at the right specification will be key - vehicles ordered prior to, but delivered after, implementation are at risk of being subject to a VAT surcharge.
"GCC countries are well-known venues for events and conferences and the difficulty for the Mice industry will be when one gets to the smaller sub-contractors in the supply chain as they will either not register for VAT or not be entitled to do so. What this will mean is that they will incur VAT on their costs and assuming that they wish to retain their profit margins, this VAT will then be built in with the charges they make. Another significant issue for the industry, particularly where conferences and exhibitions are being arranged, is that there may be long lead times between the initial contract date and the actual date of the event - and how VAT will be treated on such early payments for future events," Deloitte analysts pointed out.
- issacjohn@khaleejtimes.com
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