Technology vital for smooth introduction of VAT
Rollout of new taxation just weeks away
LONDON: Technology and innovation will be a critical factor to ensure the smooth rolling out of value added tax (VAT) on most goods and services in Gulf Cooperation Council countries, according to a PwC report published on Tuesday.
Saudi Arabia’s General Authority of Zakat and Tax (GAZT) recently released the final implementing regulations governing VAT in the country. It will be set at 5 percent when it comes into force on Jan.1, 2018. That is the same level as in all GCC jurisdictions, relatively low from a global perspective, and especially when compared to OECD countries such as Britain where it is 20 percent.
VAT has been introduced in GCC jurisdictions following a collapse of the oil price that hit government finances, and is designed to underpin economic stability and maintain living standards in the region.
Direct revenue from the tax is expected to bring in the equivalent of 1.6 percent of Saudi Arabia’s GDP annually, according to estimates from the International Monetary Fund.
Speaking as PWC unveiled its report, partner Jeanine Daou said: “Technology and innovation should be high on governments’ agendas in order to make the VAT process as effective and transparent as possible.”
She said the introduction of new taxes in any society would involve a period of adjustment for taxpayers and the public at large.
“Post-Jan. 1, 2018, the use of knowledgeable teams and efficient processes and technology will be critical in ensuring a workable transition,” said Daou. In a report published Oct. 25, another consultancy, Deloitte, said beside bolstering government revenue, the introduction of VAT would bring Saudi Arabia more in line with countries on the MSCI Emerging Markets Index, for which the Kingdom has been listed as a possible addition.
“Indeed, many MSCI countries have applied even higher rates; Malaysia has a 6 percent goods and services tax, while Russia and Turkey have an 18 percent VAT,” said Deloitte.
The PwC report formed part of the latest edition of Paying Taxes 2018, compiled in collaboration with The World Bank.
The total tax and contribution rate (TTCR) increased by 0.1 percentage points, to 40.5 percent; with the largest increases resulting from corporate income taxes and turnover taxes.
On the other hand, the Middle East region continues to have the lowest TTCR and time to comply, reflecting the relatively few taxes levied on the case study company and a reliance on other sources of government revenues. In 51 of the surveyed economies with a VAT system, no VAT refund was available for PwC’s case study company, “suggesting that there is significant room for improvement in post-filing processes in many economies.”
The report found that the average Total Tax & Contribution Rate is 24 percent in the Middle East region; and it took the case study company an average of 154 hours to comply with its tax obligations, a fall of three hours from last year.
The Paying Taxes 2018 report examined the ease of paying taxes in 190 economies, modeling business taxation in each economy using a medium-sized domestic case study firm.
“Both the time and number of payments needed to comply have continued to fall significantly, reflecting the increasing use of technology,” said the study.
It added that the time needed to comply with labor and profit taxes fell by 2 hours (to 61 hours for profit taxes and 87 hours for labor taxes), compared to last year, with labor taxes showing the greatest reduction over the life of the study (since Doing Business 2006).
“Electronic filing and payment, improved tax and accounting software and pre-populated returns are among the key drivers.”
The report also found that the number of tax payments made has fallen by around one payment for the second year in a row, driven largely by increased online filing and payments capabilities, new web portals and the greater use by taxpayers of online systems.