UAE is implementing VAT and it’s time for action. Every business should prepare a checklist of must to do tasks. Checkout the tasks to do before migrating to VAT.
Understanding the VAT Structure
VAT is the first ever huge tax reform applicable in the UAE from the start of 2018. An indirect tax reform whereby tax is charged on supply of goods and services. Every business should understand basic VAT structure relating to who is required to be VAT registered? What is taxable supply? Whether the business is liable to charge VAT? What is point of taxation? What are the compliance requirements? How should VAT be accounted in the books? Are you liable for VAT Audit? One should keep updated with the VAT Rules and Regulations as and when introduced.
Strategize Pricing Policies
Pricing is the most crucial issue affected by VAT. Considering the price elasticity of demand and other factors being constant, the prices will increase marginally with introduction of VAT. Businesses should strategize their product prices considering various factors like what type of Industry do they belong to? Which classification does their product fall under? Who are the target customers – whether industrial consumers or end consumers? Considering all such factors, businesses should arrive on implementation of pricing strategy like psychology pricing or bundle pricing or market penetration? The businesses should think on how to approach for such pricing decision – bottom line growth or top line growth.
Warehousing/ Inventory Management
Inventory management is one of the most important part of Business Process Cycle. VAT imposition will lead to accounting of tax charged on sale of inventory. Eligible businesses will also get tax deduction on purchase of inventories. To become a niche player in the industry, businesses need to take decisions for inventories related to setting new re-order levels, prioritize removal of stock – old stock or the fresh stock on imposition of VAT? What all are the strategies one will use for sale of inventories? Whether to stock up inventories now or not?
Supply Chain Management
VAT will affect all the factors of supply chain management marginally. It will also affect the cost of acquiring ancillary services like logistics, insurance, professional services, communication services, etc. The main issue of concern is who will bear the tax burden- supplier, manufacturer, trader or end consumer? Generally, end consumer bears the tax burden whereas businesses act as tax collectors for government. The question should be how to rule the market with low acquisition costs and an increase in revenue?
Redesigning ERP System
ERP System is the core of business which provides with the reports to the management for decision making from the database. ERP should be redesigned taking VAT into consideration. ERP should be redesigned for each process in the business process cycle like Purchase to Pay, Order to Cash, Production, Inventory Management, Record to Report. Businesses should appoint experts to redesign ERP Systems to get VAT ready.
Training and Educating Human Resource
Businesses should organize meetings and conferences to provide awareness of VAT tax to the employees in organization. Employees should be well trained in advance with the latest technologies, ERP systems, accounting soft wares and compliance requirements.
Getting Expert Opinion
Obtaining an expert opinion will help in smooth processing of business. Though small businesses find it costlier to appoint an expert but it is always beneficial in the long run. Expert opinion will support in business growth and achieving business goals reducing the cost and risks.
By CA. Nisha Sanghvi – Sr. Executive Accounts & Audit