Overture is an accounting and bookkeeping business interacts closely with its primary customer base of small and medium business enterprises apart from start-ups. Almost all these businesses are very clear that they will be directly impacted by VAT, as and when implemented. Further discussions with these business owners are very revealing, to say the least.
One of the key factors that come across is, that all of them have a good idea that VAT is a formal tax that is planned to be implemented. However, that is the sum total idea on VAT that they have. As an accounting practitioner, it then becomes incumbent upon us to explain what VAT is? How does it operate? What is expected and what they need to do?
The above discussion usually sets off creases on the forehead of the business owner, and the reasons for the same are not difficult to decipher. UAE has been a tax-free economy so far, and in any tax-free economy, record keeping is restricted to contracts signed and bank statements. These while helping the business know their current liquidity status, receivables, and payables, but these are not transaction records. The VAT will require the businesses to maintain transaction records with details of VAT registration number and value of VAT paid/collected. The business owner knows that he/she has work to do.
Ideally, this is where businesses like ours thrive in getting new customers. However, the challenges ahead are not easy to navigate.
To start with, our services would be an added cost to the business, this as is the case with any additional cost negotiated hard by the business to keep it to the minimum, that is if the business is convinced to act and incur the cost.
Secondly, businesses which do maintain records also realize the incomplete nature of the same. These are good businesses, in most cases, the business has been fully focused on turnover that no meaningful transaction records are available. It is indeed a challenge, then to go about piecing together information to arrive at a Balance Sheet which reflects the current status of the business. This is the second challenge.
Finally, businesses generally prefer to procrastinate the cost till possible, as was the case when mandatory staff insurance guidelines stepped in. Till the guideline became effective insurance companies called on businesses, post the deadline the businesses had a difficult time getting to insurance companies to deliver their requirements on time, as a big bottleneck was created on account of the procrastination behavior pattern. A similar pattern can be seen developing for VAT implementation, as businesses believe they have significant time to get compliant.
The problem with this is, in case of employee insurance, the business could apply online, seek a documented confirmation of application and use the same to demonstrate compliance. In case of VAT, the business has to register in the last quarter of this year, get their books of account properly set up, establish transaction document maintenance processes and most importantly evaluate their upstream and downstream verticals for similar compliance to avoid hiccups. These do take time and an early action can go a long way in smooth sailing into the VAT regime.