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Why is the Gulf implementing VAT in certain regions?


VAT was introduced to the UAE and Saudi Arabia in January 2018, although VAT had been tabled for introduction many years earlier.  As far back as 2007, the (as then) 6 GCC countries had been in discussion regarding VAT implementation as a measure to diversify revenues.  All 6 nations were, to differing degrees, dependent on oil and an aligned approach to VAT would ensure fair competition was maintained in the region.

The slump in the economic climate (crash for those who remember it well) meant the discussions were shelved at that time but VAT is now being pulled into place.

Whatever your view on global economics and the pros & cons of operating in the region, VAT is most likely very familiar to ex patriots from virtually all regions.  Taxation is a necessary evil if an economy is to sustain itself, let alone thrive.  As a rapidly burgeoning economy, the GCC has demonstrated commitment to improving infrastructure and services, all of which require funding.  The agreed starting rate of 5% for GCC VAT is, in reality, relatively low when compared to that levied in the rest of the world hence the initial percentage is comparatively small.

Successful businesses not only adapt and cope with change but position themselves to thrive upon it.  Forward thinking enterprises will have had plans in place long before the VAT was applied and will have carried out detailed analysis of what changes they would need to make to remain at the cutting edge of their field.  Those that did not, are going to be suffering and those that operate on tight margins may well be in critical condition where VAT has been allowed to eat into the tight profits available.

It is important to recognize that VAT is an indirect tax, that is to say, it is a tax levied on a service provided rather than applied directly to an individual at source (the most common and perhaps feared example of a direct tax for ex patriots, being income tax).  Although indirect tax is levied on individuals, it does impact all areas of the economy as it generally drives up the cost of labor (and the vicious circle begins with price rises, inflation and so on, to keep pace with each other). 

All member states of the GCC (Saudi Arabia, Dubai, Qatar, Bahrain, Oman and Kuwait) had agreed and committed to the 5% VAT levy.

Bahrain began it’s VAT introduction in January 2019 with Oman anticipating their implementation to be scheduled for September 2019.  Kuwait has tabled their introduction for 2021 but no firm date has yet been set.

VAT for the GCC is a reality and, the good news for construction companies is that your dedicated construction software can deal with it for you.  Providing you have industry leading software such as BuildSmart from CCS, all the nuances and adjustments required are already part of the suite.  Even better news, by linking BuildSmart to Candy, CCS’s Estimation Software, these powerful tools will make all the necessary adjustments and calculations to ensure you are bidding correctly and able to maintain your margins throughout the lifetime of your projects without seeing VAT cut them to pieces.

Software that was conceived, designed and developed on the global stage to cater for multinational operations and cross border projects, and have been dealing with VAT for decades.  To ensure you are letting the software carry the bulk of your VAT workload, contact CCS and let us demonstrate how Candy and BuildSmart can do all the heavy lifting for your VAT and so much more.

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