All in the details for value added tax in the GCC

On Monday last week, it was announced that the Saudi cabinet had approved the Unified Agreement for Value Added Tax. The Unified Agreement, previously referred to by the working title of a framework agreement, is an overarching agreement that will be concluded by all six GCC nations. The best acronym, albeit long, is "GCC UAVAT".
The unity referred to in the GCC UAVAT is a unity of purpose. The GCC UAVAT is intended to make sure that VAT is introduced in the GCC in a coordinated fashion. It does not necessarily mean that each national VAT law will be identical, nor that those national laws will all become effective on exactly the same date.
The rate of VAT has been confirmed at 5 per cent, a figure that was agreed at GCC level in mid-2016.
On Wednesday, further information was provided by the Bahrain information affairs minister, who held a press conference attended by the under-secretary for finance banks-and-builders-struggle-in-fourth-quarter
The Bahraini minister confirmed that basic food and other consumer commodities, medicines and medical supplies will be exempt from VAT. This, again, is in line with previous announcements, which have indicated that a list of just under 100 items or categories of goods and services will not be subject to tax.
The list of exemptions signals a clear intention on the part of the GCC authorities to temper the mildly regressive nature of VAT. If such steps were not taken, the tax would affect the poorer segments of society more adversely than on the better-off, on any proportional – if not absolute – measure. It is reassuring that societal welfare has been taken into account at the highest level. The Bahraini finance undersecretary was at pains to point out that "the tax will not affect persons with low or middle incomes".
The Bahrain press conference was notable for some other pieces of information.
First, the finance undersecretary confirmed that "five GCC countries, including Bahrain, have signed the [GCC UAVAT]". Simple arithmetic would indicate, therefore, that one signatory is still awaited. It is not known which GCC nation has yet to sign. Given the prominent role that the UAE has taken throughout the discussions, it is very unlikely to be the UAE.
Secondly, it was said that "administrative and legislative work will start soon". That laconic comment covers a lot of ground. Administratively, the introduction of a new tax is complex, even in jurisdictions where a broad tax regime already exists. Where that is not the case, there is an obvious need to set up (or at least expand substantially) a national tax authority and to train the personnel within that authority. For VAT, the necessary administrative measures go further. VAT is said to be a "self-policing" tax because of the netting-off of input tax from output tax at each successive stage of the production and distribution cycles. Thus, administration is not confined to the national tax authority. As taxable entities, VAT-registered businesses also have administrative responsibilities. Work must be undertaken in that important regard.
The expression "the devil is in the detail" is nowhere more applicable than tax law.

Source: The National