VAT and IT: Tech solution could make process easy

With the impending VAT rollout in the UAE in just under seven months, there's much to discuss about how technology could support businesses, revenue officials and taxpayers.

There are two ways in which technology affects VAT. The first is how taxpayers can apply technology to help calculate the tax due and file the necessary returns. The second is how technology can support revenue authorities in collecting the tax and auditing. No doubt that newly implemented VAT systems will be prone to revisions, as authorities look to streamline VAT audits, improve collections, identify fraud, and simplify filings. Those changes will be challenging to keep up with for both tax officers and taxpayers. If technology can respond quickly to the changes, all parties involved will benefit.

Efficient processes

Technology will be widely used when VAT is finally introduced in the country. As such, flexibility on the part of tax officers and taxpayers will be critical to successful implementation.

Understanding VAT is all about efficient processes, good practice - such as running spot-checks to ensure the company remains compliant - and, above all, knowing when and where to find the right information.

Web-based and mobile solutions could also come in handy, as one could photograph receipts straight onto a smartphone and enter expenses into a mobile app. This not only saves time, but it also cuts down on repetitive tasks.

Automated solutions could also save the admin team time wasted in chasing receipts and inputting basic information. And because all expenses data is consolidated in one place, it could also provide valuable insight into spending trends and where savings can be made. Finally, and perhaps most importantly, it will prepare the information correctly for submission to the Federal Tax Authority.

Compliance burden

Our workshops have also sought to dispel fears that VAT would be an insurmountable administrative and compliance burden for UAE businesses. It's important to note that technological solutions won't make compliance burdens disappear, but they could significantly ease the process.

With the Federal Tax Authority looking to make sure that all relevant entities comply with the regulations, it pays to pro-actively invest in VAT. This should thus lead businesses to carefully consider the adoption of technology for the management of VAT. The best bet however, is to seek the services of a professional advisory firm to manage their VAT obligations, as the complexities of transaction flows, complexities of supply chains, specific GCC and local UAE VAT regulations require in-depth knowledge of the VAT laws, generating otherwise significant risks for the business. The effort involved in expensing and reclaiming VAT is onerous particularly for small business owners, but professional firms are there to ease the burden.

Significant risks

In the same vein, it is expected the implementation of the VAT will bring new risks to businesses. Therefore, it is essential for the finance team to understand exactly whether their business is exposed to any VAT based risks. One cannot control what he doesn't understand. If the tax-relevant business processes are fully understood and properly managed, then potential risks are excluded as much as possible.

The following rule is key: the more complex the VAT supply chain, the higher the tax risk. If the VAT rules are not applied properly, your company may be at risk of incurring high fines for non-compliance and being charged turnover based penalties for incorrect appliance of the 5 per cent rate. Your business also runs a risk of presenting invoices that do not fully comply with the legal requirements, such as where the recipient of the invoice cannot deduct taxes stated on the invoice, the incorrect tax amount stated on the invoice is being due by the sender of the invoice and may also face the risk of VAT-fraud. Thus, having a clear view on VAT risks is crucial for safely conducting your business.

Our forthcoming workshops - scheduled to commence after the holy month of Ramadan and Eid holidays - will cover the more problematic aspects of VAT, such as rate differentiation and exemptions, the scope for non-compliance, and difficulties applying VAT in the context of cross-border trade across the GCC.

The writer is Crowe Horwath's VAT Services Team Leader. Views expressed are his own and do not reflect the newspaper's policy.