Tax has become an important step towards ensuring region’s socio-economic resilience
Following the signing of the Common VAT Agreement by GCC member states, value-added tax (VAT) has become an important step towards ensuring the region’s socio-economic resilience. The new tax regime is a proactive policy meant to diversify the GCC economy, bringing fundamental positive changes to the region. Below are some of these transformative effects felt just more than a year after the system’s implementation.
Increased transparency and accountability
VAT is simpler to implement compared to other indirect taxes. It is also more transparent because the system entails that it be levied at each stage of the supply chain. Indeed, higher transparency and accountability levels are among the benefits of introducing VAT to the regional market.
Companies required to register for VAT purposes contributes to the transparency level by enabling concerned government authorities to track businesses and monitor effectively their compliance. This provision also leads to the creation of a reliable and updated database, thereby aiding the governments in their respective economic performance assessments.
Businesses are critical to collecting VAT from consumers. While before they have limited reporting requirements, companies are now required to maintain all necessary records such as tax invoices and make timely report to the government. To comply with their duties under the VAT tax regime, it is imperative, therefore, that they make sure that their relevant processes and transactions are compliant with the provisions of the law.
Higher global competitiveness
As a result of this high-level transparency, the GCC will be now well-positioned to boost its global competitiveness and transform itself into one of the major business hubs in the world. This is another positive effect of the VAT system.
The region’s continued adoption and implementation of best industry practices will also help bolster its efforts to attract more global investors. Inflows of investments into the region will help reinforce its non-oil sectors and fast-track its quest to build a sustainable future for its citizens and residents.
Businesses with advanced ICT
Moreover, the Common VAT Agreement entails a migration to a more VAT-compliant accounting system, allowing businesses to effectively and smoothly charge and recover VAT from the people. This requires investments in modern information and communications technology infrastructure and, to some extent, implementation of reforms within the organisational structure. Improved ICT leads to more effective and well-organised operations.
There is a steady migration to a more advanced, accurate, and transparent infrastructure from outdated business systems to make an organisation’s invoicing, accounting and auditing processes more compliant. Businesses, especially the small and medium enterprises, are also expected to utilise business and compliance management software to help modernise their processes.
Enhanced operational efficiency
Consequently, businesses achieve higher and more enhanced operational efficiency. Modernising their operations has made regional businesses at par with their counterparts in other leading countries. In line with the system and infrastructural upgrades and developments, the relatively new tax law results in skills improvements and capacity-building programmes within the organisations for proper monitoring and management of key processes such as financial reporting, tax accounting, and overall compliance procedure.
New source of funding for socio-economic programmes
As the GCC creates new means to boost its revenues across diverse fields, it is not only laying a solid foundation for a resilient economy but it is also allowing itself to maximise its full growth potentials in keeping with the developments in the ever-evolving global economic landscape. New streams of income can fast-track the programmes and projects of the Gulf states designed to support their shift to a sustainable and knowledge- and innovation-driven economy.
Governments, businesses and the public at large are an important element in the successful implementation of the VAT system. Continuous cooperation among them will help create contemporary public services and allow the GCC countries to effectively boost their economies. The trick is to sustain an upbeat public sentiment and a favourable business environment under the tax regime to ensure successful implementation and full optimisation of VAT’s immense socio-economic benefits at the local and regional levels.