Don’t try to pass the buck on VAT responsibility

Like it or not, value added tax will make its UAE arrival in a matter of months, and complying with its requirements is not even a matter of choice for companies based here. Therefore at every level departments must examine their role come January, David Daly writes.

The new tax will bring with it a torrent of paperwork that corporate departments might not be keen to add to their workload. Getty Images
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Your coffee-quaffing accountants who collaborate on VAT articles for these pages have primarily focused on the processes required to comply with the tax’s expected reporting requirements – without addressing ownership of the same. Today as we sit around the boardroom table, I want to aid businesses in a discussion that should really have already taken place.

If it hasn’t, you are in luck. Ramadan and summer are upon us. These both bring a downturn in commercial activity with shortened working hours and individuals taking holidays in cooler climes.

This task cannot be ignored. VAT deniers are today’s flat earthers. If it wasn’t for the heat you’d easily identify them by their tin foil hats.

What executive does not want to lead the charge in a material change to their business? As long as it’s their original concept or interpretation of sector bleeding edge innovation, no lacking will be found in enthusiasm. But any potential harbinger of failure is invariably celibate.

Who should own the VAT process in a business? The CEO must frame and lead discussions so it can be assessed and addressed. A useful route would be to trace a trading sale end to end and weigh up who is closest to the various VAT events.

It is the marketing director’s role to shake the bushes in search of customers. In support of this monies are spent to coax sales through conferences, entertainment and other mediums. The first of these can typically be reclaimed, the second not. It is an area of spend where many mistakes are made in VAT computations.

Where a cost cannot be reclaimed, this is an additional net cost to the business, so marketers should be aware of what does and does not come laden with unclaimable VAT.

Marketers are very project- and event-driven and would be aghast at the idea of managing something that required bureaucratic cyclical reporting. This person would promptly purr “not I” when asked to do the job.

The sales director in closing deals remains affixed to customers. The closest to paperwork reached would be to remind them to settle their outstandings. This person would be greatly concerned that nothing arises that harms those relationships. In any case they should be a rare sight given they belong at their customers’ offices, so they too would ultimately bark “not I”.

Before deals get actioned the legal director would ensure that all terms and conditions are in order. This person should ensure that a copy of the business’s VAT registration certificate is passed to customers. In some businesses this additional paperwork could start to mount up.

Surely an electronic copy would suffice? Unfortunately paper copies are typically required and the GCC has a penchant for paper when it comes to legal tribunals. The CEO should look to legal, which would already act as librarian to the business’s supplier and customer contracts.

Digitisation is leading to a reduction in the number of libraries in schools as this new generation grows up reading from electronic tablets. Thanks to this librarians are readily available and in a large enough business would be kept busy managing documents with expiry dates that need monitoring for renewals. The cost is likely to be less than any fines for non-compliance or the human cost of disturbances because of the requirement for VAT investigations.

Conscious of legal’s role within the business as a mostly non-operational peer review, the words “not I” would be properly spoken. Maybe in Latin.

It is the role of the operations dir­ector to ensure the process from purchase to delivery is painless. Ownership of suppliers and final delivery on customers’ expectations rest here.

Should a supplier indicate that they are not registered for VAT and it is felt that the magnitude of business conducted suggests they should be, then demand that they register or walk away. While there is a moral case for informing the authorities, it is unlikely there will be a legal requirement.

Focused on satisfying the customer experience, the director of operations would cry “not I”.

From the beginning of the meeting all speakers have been addressing the director of finance in an attempt to steer the CEO’s line of sight. However, VAT is about process, not cash.

Spinning the conversation, finance might suggest that internal audit, which reports to the chairman, has the appropriate process testing skills to take the preliminary numbers from fin­ance and validate them through sample testing. Legal might perform a final review for compliance and the VAT return could then be lodged in the normal manner

In concluding, the words “not I” are delivered dryly.

Uproar is likely to have now ensued as all directors having said their piece attempt to indirectly influence the still silent CEO.

Judgment made, the CEO silences the room and begins to speak. “This process has been useful as it makes everyone conscious of the VAT journey and the parts played in ensuring the business neither loses reclaimable VAT nor suffers penalties.”

“Mature VAT environments suggest a single sector business with multiple entities can expect to spend Dh200,000 to Dh300,000 to become compliant. This is not an immaterial investment. It doesn’t support delivery of future profits but it does mitigate costs that would drive them down.”

“The last hands involved in the sales cycle are finance’s. For that reason it’s imperative that they continue to fulfil their environmental role at the most downstream part of the business process where all unresolved issues come out in the wash.”

Each business must finish this story in a manner of their own choosing, but they must make and execute a solution based on their choice. Today that decision is already overdue.

A final note. The HR director would in all likelihood have said nothing. Rightly so.

David Daly is a chartered accountant (Cima) typically serving in chief financial officer or finance director roles.

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