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VAT live in Oman: Are businesses prepared?

VAT went live in Oman on 16 April 2021 at a rate of 5%. The Sultanate joins three other GCC countries that have already implemented VAT – namely, the UAE and Saudi Arabia on 1 January 2018, and Bahrain on 1 January 2019.

Businesses in Oman have had six months to prepare since the VAT law was issued in mid-October 2020, with the Executive Regulations being published mid-March 2021. That being said, ensuring VAT compliance is a continuous journey in any business, given how often regulations can change and the fact that best-practice guidance is published relatively frequently.

Saudi Arabia, for example, has implemented numerous changes since the introduction of VAT in 2018, including an increase of the VAT rate from 5 to 15% and plans to introduce mandatory e-invoicing with effect from 4 December 2021. For these reasons, managing VAT requires the skills of specialists from various functions both inside and outside the organization – including tax advisors, business analysts and IT experts.

It’s important to take into consideration whether there are sufficient resources that are readily available to manage daily VAT processes and challenges. 

How are organizations in Oman faring?

During the countdown to VAT implementation, Thomson Reuters MENA ran a webinar poll to gauge levels of VAT readiness among entities that operate in Oman. While some organizations were clearly well-prepared to comply with the new VAT requirements from go-live, others still had some way to go.

According to our findings:

  • 52% of the companies surveyed had not yet budgeted anything for VAT in 2021
  • 33% said they had no VAT knowledgeable resources in their organizations

Our research also suggests that there are still many organizations in the GCC that need to address the VAT readiness of their technology platforms and tools. Adjusting existing systems, such as ERP platforms, to manage VAT determination and compliance can be a time-consuming project that places immense pressure on finance and IT teams alike.

When asked whether their IT platforms were ready for VAT, the answers were concerning:

  • 27% said they were not sure
  • 9% said their IT platforms consist of older legacy systems and do not support the ability to build VAT logic

A further 27% are relying on a mix of legacy and off-the-shelf ERP software packages, and say their systems are ‘partially VAT ready’.

While relying on an ERP system to manage VAT may seem like a viable option, what many organizations new to VAT don’t realize at first, is that many ERP systems do not meet all the requirements. This means that tax teams will have to use manual approaches and desktop spreadsheets to manage their VAT processes. Further, the teams responsible for supporting those ERPs end up spending many hours building and debugging manual VAT processes, as well as creating and maintaining tax codes in the ERP.

This is labor-intensive work and, as with any manual approach, there’s a risk of human error. That means data is not always accurate and VAT processes lack rigorous controls. These issues become even more of a challenge and risk when future VAT updates require these teams to rebuild VAT processes and tax codes. 

What’s the solution?

Using an indirect tax software solution to automate key VAT processes can simplify and streamline daily workloads; and take the pressure off company resources – all without disrupting existing ERP processes. This type of solution can connect seamlessly to the systems already in place, providing companies in Oman with the tools to do everything from determining the right amount of tax on invoices, to e-filing monthly VAT returns and running exception reports. 

It’s ideal to look for a system that can:

  • Automate VAT rates and rules, keeping data free from errors and ensuring compliance with the applicable laws and regulations, in their current version
  • Generate compliant VAT invoices for sales of goods and services, as required by law
  • Save time that would be spent on data collection, cleansing and manipulation
  • Provide a single source of truth for tax data, to support effective decision making and better compliance
  • Issue, maintain and easily retrieve accounting records or any other document to support all transactions. (Please note, records and documents should be stored for 10 years)
  • Adapt and scale to suit the changing requirements of legislation and operational needs

All these benefits help to improve the efficiency and accuracy of the tax team’s work, while alleviating the burden on the IT department and other supporting functions. All the time and resources saved can be quickly redirected towards other projects that are critical to business success. 

What’s the way forward?

When considering their IT options, decision-makers should take into consideration the speed at which VAT regulations can change and the fact that Oman has implemented strict penalty provisions in case of violation of VAT obligations. (These include an imprisonment penalty of not less than two months, and not more than one year, and a fine of not less than 1,000 Omani riyals and not more than 10,000 Omani riyals). [1]

All in all, it’s important to be as proactive and forward-thinking as possible. A solution that automates data and processes, provides accurate tax rates and rules, and is easy to scale as regulations and needs change, will allow businesses to avoid unnecessary costs and risks, while managing both internal and external pressures with confidence.


[1] https://www2.deloitte.com/content/dam/Deloitte/xe/Documents/tax/me_oman-vat-law_unofficial-english-translation_nov-2020.pdf

 

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