Small business owners want to be reassured on VAT

Entrepreneurs said they understood that new revenues from VAT could boost regional development in GCC economies hit by falling oil prices, but called for better communication about the benefits that VAT would bring their businesses.

Mona Tavassoli, of Mom Souq and Mompreneurs, says that one benefit of VAT will be to encourage small business to keep a closer watch their financial paperwork. Satish Kumar / The National

DUBAI // Small businesses say they want to hear more about the benefits that the value-added tax will bring for them.

Entrepreneurs, who will have to deal with extra costs and introduce processes and software for the VAT, said they understood that new revenue would boost regional development in GCC economies hit by falling oil prices.

But they hoped their businesses would be treated differently to corporations in the long run, after the 5 per cent tax on goods and services was introduced in January.

Mona Tavassoli, founder of Mom Souq and Mompreneurs, which caters to female entrepreneurs in the Middle East, hoped changes would be made in the long term to help small businesses flourish.

“One of the changes we are hoping to see is to have some difference between a small business and a huge international company, because for now they pay the same fees when starting up and a lot of entrepreneurs find it very costly,” she said.

“It’s not as if people won’t do business because of the VAT but for a start-up to go through all those initial costs and then pay 5 per cent on top, it could be something that will affect them.”

The Ministry of Finance has said it would give businesses a grace period to bring in the VAT, and education has begun.

The mandatory threshold for VAT will be businesses with annual turnovers of at least $100,000 (Dh367,000), said David Stevens of E Y accountancy.

“Only very small businesses will not be part of the VAT system,” Mr Stevens said.

Initial outlays will include changing operations, systems and communications.

“If this implementation is done well from the outset, VAT will become part of the everyday operations across businesses with very minimal additional ongoing costs,” Mr Stevens said. “The key is to get the implementation right.”

In some countries the requirements for small businesses are simplified, said Jeanine Daou, of PricewaterhouseCoopers.

“The impact might be bigger especially for small businesses if they are not organised and do not have the right controls in place to be able to comply,” said Ms Daou.

“Some countries introduce simplification for small and medium businesses in terms of bookkeeping and documentation requirements.”

An important consequence will be that small businesses must keep their books in order.

As many as 90 per cent of start-ups fail within the first three years – more than 80 per cent because of cash flow and finance issues, said Ms Tavassoli.

“One advantage of the tax is that people will have to do their finances and that could actually have a positive impact on businesses,” she said.

“A lot of entrepreneurs neglect financial statements because we don’t have taxes here or because they don’t have a finance background, or they don’t understand it.

“It can impact on them positively because they will monitor the numbers from day one.”

Preparation can be simple, said Marie-Claire Accordino, founder of the The Accounts Dept, which provides bookkeeping services for small and medium-sized businesses.

“The most important is to keep a set of accounts,” said Ms Accordino. “A lot of businesses here do not keep accounts. Obviously resources are limited as a small business and they are trying to do everything.

“But they should really get their accounts together and buy a software package with tax functions you can turn on, and invoicing sections. That would be the first place to start, to actually capture the information.”

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Value Added Tax in the GCC

Pawan Singh / The National

■ Analysis: Who should worry most about VAT in the UAE?

■ Analysis: All in the details for value added tax in the GCC

■ Commercial property sales subject to VAT from next year – but residential is exempt

■ Q&A: Sultan Al Mansouri, the UAE Minister of Economy, and his views on VAT, infrastructure spending and the investment law

■ Comment: The basics of value added tax

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