Insights

Financial Year 2018-19 will be the defining year for GCC. With the advent of much awaited Value Added Tax (VAT) reform. VAT is expected to have a far reaching and wide impact on business, society and general economy. Smooth transition to the VAT is one of the top 3 agenda items on the Board and Management’s strategy and execution list. With VAT, the past no longer holds good and future is laden with number of implementation challenges...

On account of applied taxes on services, it is expected that the services are going to be expensive. Companies with significant level of revenue from services e.g. technology companies, consulting firms, professionals across various domains. commercial leasing, hotel management will be impacted on account of higher incidence of tax on the ultimate consumer. The customer's discretionary spending will be affected in the short term, till that time savings on account of lower taxes on goods will be compensated by higher taxes on services spend.

VAT regime is expected to bring in a significant change for Industrial Machinery and Components. It could give rise to a new Industrial Era. With SAP S/4HANA. companies engaged into Industrial Machinery and Manufacturing sector will be able to analyze high volume of data on the basis of market, demand, production, inventory across various locations and compare with the post-VAT scenario…

Discrete Manufacturing and Automobiles is one of the key industries to witness the massive impact on account of VAT implementation. VAT regime has a high level impact on end to end business model of companies engaged into Discrete Manufacturing and Automobile.

The Chemicals and Pharmaceutical industries are expected to have a high level of impact across multiple functions, business areas and models. VAT regime is likely to substantially amend the basic molecule of the Chemicals and pharmaceuticals Industry.

Retail, E-Commerce and FMCG industry is expected to have high level of impact on account of intensive supply chains, wider reach to consumers in rural as well as urban markets and high volume of upstream and downstream business sourcing and distribution channels.

Being the base and prime sector, VAT regime is expected to create a complete makeover for the industry, the impact of which will be felt heavily downstream. Specifically, current indirect tax incidence on Metals & Mining companies is close to 10-11% Further the tax incidence on products like steel and aluminum is in the range of 18-20% which is expected to remain same or increase marginally under the VAT regime. It is expected to increase by more than 20% post-VAT implementation. The impact on increased taxes is expected to be absorbed by players in the downstream through reduction of tax rates.

The VAT in the GCC will –most likely –be based on the European system and will be charged at each step of the 'supply chain'. Ultimate consumers generally bear the VAT cost while businesses collect and account for the tax, in a way acting as a tax collector on behalf of the government. A business pays the government the tax that it collects from the customers while it may also receive a refund from the government on tax that it has paid to its suppliers. The net result is that tax receipts to the government reflect the 'value add' throughout the supply chain.