Clarion call for preparedness as VAT looms
Complex changes to get systems ready for tax requires VAT IT implementation professionals
Business owners should not try to cut costs in getting their IT systems ready for VAT, KPMG expert warns.
Organisations may believe that getting their complex ERP systems ready for VAT will be straightforward and so can ‘save’ money by performing the changes to their IT systems in-house. Conversely, not consulting IT professionals when reviewing, preparing for and implementing changes such as the introduction of VAT, exposes the business to unforeseen risks that may result in noncompliance and incur a higher cost in the long run, says Dr. Yamen Hamze, KMPG associate director on ERP.
Attempting to perform such a complex change in-house should be mitigated by consulting with specialised VAT IT implementation professionals, he adds.
“Organisations would typically have their Finance department drive this project. Finance may account for the bulk of the impact, but they may fundamentally overlook the end to end critical IT touch points and much needed process changes. This oversight could result in very high penalties that could potentially cost the organisation several times the budget of hiring professionals to help with the compliance,” says Dr. Hamze.
KPMG is consulting with various businesses in the region to help with their VAT preparations.
UAE may begin levying VAT from January 1 2018 at a rate of 5%, with exceptions to be published in the upcoming UAE VAT legislation. The new tax was introduced to help the countries diversify their economies away from oil.
VAT experts would help businesses to, among others, measure and evaluate their IT system(s), determine goals, assess institutional rules, roles and tools, and develop and implement an action plan. To do this in-house is likely to be more expensive in the long run, as businesses may need to hire permanent staff with tax expertise.
Dr. Hamze added that it is crucial to ensure that IT systems are VAT-enabled, including ERP, accounting, and point-of-sales IT systems. Businesses’ IT systems must be able to implement all legal regulations, so complying with daily VAT requirements. Some areas of focus are: (a) budgets i.e. financial costs, time costs, resources required and resource awareness, (b) reviews of contracts and templates, for example, who is liable for goods and services provided after the VAT introduction date? (c) impact on cash flow, VAT schemes to look out for, credit terms offered to customers, the readiness of the suppliers for VAT (d) system configuration, such as, producing reports for VAT returns and supporting documentation for VAT recovery (e) VAT impact on other taxes, i.e. withholding taxes and transfer pricing.
Backend ERP systems should be an area of focus when assessing the impact of VAT on IT systems. Naturally, this means that this is not purely an IT project, but requires buy in – and contributions - from all departments, including finance, legal, marketing, sales, procurement, production, and even HR.
Global ERP systems are generally ready, says Dr. Hamze, as vendors such as SAP or Oracle have deployed and adapted such solutions for VAT across 160 countries. “The systems to levy VAT are ready and built-in into major ERP solutions. All that is required are minor system tweaks for localisation. However, that is not to mention the enormity of the process changes and system alignments required in your backend systems to be VAT compliant,” says Dr. Hamze.
Customisation and internal nonstandard developments that clients create on their ERP systems may be the main issue in implementing VAT. Some of these changes to the fundamental best practice are substantial as such it would render their reporting unusable. These will have to revised or reversed back to standard practise in order for VAT to take effect correctly, says Dr. Hamze.
Others are those with a custom-made ERP which would typically require a tax engine to support taxation. A Tax engine such as Vertex and Thomson Reuters might have to be introduced to improve VAT compliance by automating the time-consuming and error-prone process of producing signature-ready country VAT returns.
Ultimately, it is crucial to ensure that IT systems are VAT-enabled, including ERP, accounting and point-of-sales IT systems. Businesses’ IT systems must be able to implement all legal regulations to comply with daily VAT requirements.
The exact details of the VAT regime are still being worked out and individual national legislations are yet to be made available. However, waiting for the legislation to be published to initiate the impact assessment process is not ideal, says Dr. Hamze.
For one, expert resources in VAT are very thin regionally. “If these businesses do not align themselves with a major consultancy, they may find themselves with inadequate resources once legislation is published. They then will be forced to pay much higher costs for expertise.”
Though the legislation is yet to be published, organisations can still do a very detailed impact assessment. When authorities release all the details, it will be an easier process of doing the actual implementation of the software with the required tweaks.
“The expected VAT laws are not ‘business as usual’ and businesses may need several months to successfully integrate VAT functionality into their systems, test user acceptance, train staff and develop post go-live support,” Dr. Hamze explains.