Expert Q & A on Value Added Tax
Value Added Tax implementation date is nearing and there are many queries arising from business houses which need to be addressed. We know that the Executive Regulation are awaited and most of the doubts will get clarified once the regulation are announced. However, we also understand that the businesses cannot await for the regulation and need to take a step forward for VAT implementation in a timely manner. Here are some of the questions raised from businesses and the suggested replies on how to deal with the VAT implementation challenges.
Q1. Will the goods exempt from customs duties also be exempt from VAT?
A1. The article 47 of the VAT law has mentioned the categories of the supplies subject to exemption. Any goods and services which are exempted from customs duties will be subject to VAT if not exempted vide article 47.
Q2. Will there be relief for bad debts written off?
A2. VAT registered entities will be able to reduce their output tax liability by the amount of VAT that relates to the bad debt which has been written off. The regulations will include the conditions and limitations concerning the use of this relief. The businesses should have relevant documents to support the bad debts written off.
Q3. Will VAT apply to advances received?
A3. VAT registered entity has to collect and pay VAT on advance received by issuing the Tax invoice for the same. Later the advance can be adjusted in next invoice by giving reference to the advance tax invoice number. As per the Oman VAT law, VAT triggers at the earliest of the; payment (including advances), date of delivery of goods or services or date of issuance of the invoice.
Q4. What will happen if the goods are supplied in pre-vat regime but invoices are raised and payments take place after 16th April 2021?
A4. In case when goods are supplies before 16th April 2021 and the delivery notes supporting the same are available, then VAT does not arise even though the invoices are raised or payments are made on and after 16th April 2021. The Executive regulation are supposed to provide transitional rules for dealing with such transactions especially related to continuous contracts.
Q5. Will there be a VAT on deposits?
A5. For the purpose of VAT, deposits need to be classified as refundable and non-refundable deposits. VAT would be payable only on the non-refundable security deposit and not on the refundable one. Now if the refundable deposit gets forfeited at a later stage due to noncompliance with the agreement or conditions attached, then the VAT would be payable on the forfeited amount.
There are several areas where reference of Executive Regulation is required. Once the same is announced, appropriate VAT treatment will be know. However, we advise corporates to take necessary advice and consultation in order to prepare themselves well in advance.
