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VAT won't disrupt downstream businesses - expert

by Slavka Atanasova on May 8, 2016


Patrick Schneider is an economist at IHS Economics.
Patrick Schneider is an economist at IHS Economics.

The planned introduction of 5% Value Added Tax (VAT) across the GCC will not be “hugely disruptive” to refiners and petrochemical producers in the region, according to IHS.

Patrick Schneider, an economist at IHS Economics, told ArabianOilandGas.com that although downstream industries in the region “tend to rely on a low tax and low input cost model, the proposed VAT is small enough that it likely would not be hugely disruptive.”

“Given the expected low rate of the proposed GCC VAT, it is less likely to affect consumer and business decisions and will be easier and less costly to implement than other taxes,” he added.

The statement comes as audit and consulting firms Ernst & Young Qatar (EY) and PricewaterhouseCoopers (PwC) warned that the introduction of VAT represents a significant change in tax policy and would have a “broad impact” on businesses in the region.

The companies advised executives to start planning in advance to ensure the new taxation model is implemented correctly, or risk incurring additional financial costs.

Companies will need to review existing contracts that do not accommodate the introduction of a new tax. Otherwise they "may be forced to absorb the impact of VAT if the contracts are not amended,” said Jeanine Daou, PwC Middle East partner and indirect taxes and fiscal policy leader.

All GCC member states have agreed to a proposed 5% VAT to be introduced in 2018, although individual countries will have some flexibility as to when during that period to introduce the tax.

For VAT to be implemented by all six GCC states, two countries will first need to prepare the tax laws associated with the VAT and present them before the GCC Secretariat for adoption.


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