Taxes ppt

VAT – Is our current business transactions ready?

The country have finally decided to implement the Value Added Taxes (VAT) as a form of improving

its financial income, such move has been long awaited, and certainly have been one of the main

suggested actions by the WTO. Whether the country actually requires the tax income is subjective

and is currently been debated by the many economic voices within the communities; however, this

is not the subject of this article.

VAT income are normally collected either monthly, quarterly, or yearly against invoices or bills raised

during a tax year (as suggested from 1st April – 31st March). Businesses weather small, medium

enterprises or large corporations submit their raised invoices or billing via a government portal

mechanism and pay their collected VAT based on the amount of billing/invoicing, regardless if this

payment has been actually received from the market or not.

This is a major concern to businesses where the financial circulation system is not currently robust, it

is very common and typical for businesses to operate on credit notes, and even worse, sub-

contractors work on back to back contracts, i.e. paid when get paid.

There is no current financial laws to stop such non-sense business transaction, and the current

market has been operating in such ways for years and unfortunately have become the norm.

Additionally; banking sectors do not recognize sub-contracting agreements, and hence no financial

services are provided to such sub-contractors, and therefore bill discounting services are not

provided, and the sub-contractors are usually under the mercy of the main contractor and employer

to get paid. This is one of the main reasons SMEs are of higher risk due to the non-consistent

payment collection and no laws assisting them to follow on their payment, and usually, sadly end up

failing.

With the added burden of implementing the VAT, and its requirement to be collected on timely basis

or else face a hefty fine, black listing and so on; sub-contractors throughout the different sectors

would further suffer direly against additional expenses that needs to be serviced before being able

to receive their deserved payment.

As a result, this would create loopholes in the system, such as the ones seen in the neighbouring

countries, items such Performa invoicing tools (fake invoicing) are going to be used, or cash based

transactions would be increased to avoid real billing, and hence works against the desired outcome

of implementing the VAT system in first place.

It is time for the financial system to fix loopholes that has been passing under the radar for quite

some time, and for no real reasoning at all.

To strictly implement a financial system that helps businesses prosper and grow fairly. Back to Back

agreement need to be banned and outlawed, contracts or agreements should not be put in place if it

cant be met in the first instance by the employer/ main contractor, or as in some unfortunate cases,

was never meant to be met by the employer.

Employers or main contractors are allowed to access banking loans to finance projects, and surely

calculate the interest rates in their original quoting, hence their ability to pay off their sub-

contractors on time is a matter of paperwork rather than financial issue. A fixed maximum payment

terms (dependent on the tax payment schedule) should be put in place, either 30 days (such as the

European Union), 60 days as per Oil & Gas Sectors, or a max of 90 days, and creation of laws and

regulations to back such payment terms need to be backed by the government.

This would solve the majority of issues related to businesses in the country, and certainly would

encourage locals to dive into business ventures who require to be paid on monthly basis for a

normal and decent living.

Yes we do look forward for the government benefiting from VAT, but not on the expenses of

businesses.

Sultan Salem Al Maskri

Founding Director of Tenable Fire Engineering Consultancy.