Over the course of this year, there has been much discussion about the implementation of value-added tax (VAT) by the UAE government with other GCC countries soon to follow. The implications of VAT on smaller channel firms may be profound, considering there are cases where some firms do not conduct regular audits.
The reason behind this new directive is because declining oil prices have compelled GCC governments to seek newer revenue streams. If a business generates a turnover of over AED 375,000, it will have to be listed as a VAT vendor. Even if it makes about half of this value, owners have an option to register for VAT on their own accord. The process of becoming VAT compliant should take approximately six to nine months according to experts. This means those firms who haven’t looked into this tax yet are already late and will have to pay hefty fines for non-compliance from tomorrow onwards. While the cost of this tax is eventually passed on to the end customer, it is important that channel firms have the right processes in place in order to be able to charge it in the most efficient way.
Living in a country that has been tax-free all these years, even a 5 percent VAT is a cause for objections. That being said, experts are certain that it will boost the regional economy. When it comes to the channel business, the positive consequence of VAT will be that only serious legitimate businesses will remain. VAT will validate a firm and make it credible in front of its stakeholders. While the initial process will be challenging, it is encouraging for the long-term. This is what all channel firms need to understand.
2017 has been a difficult year for regional IT firms. While those companies who have remained cautious have continued to sustain growth, others have struggled with currency fluctuations, low margins, credit issues and lack of differentiations. In the New Year, VAT will drive automation and bring in fresh opportunities for channel players. Those players who understand the market opportunity around each technology and development have the potential to succeed in 2018.