VAT roll-out accelerating digital transformation in the GCC, says EY

25 May 2018 3 min. read

Tax authorities across the GCC are using sophisticated software to facilitate VAT collection. A poll conducted by EY found that companies are accelerating their own digital transformation processes in response to the new demands.

The introduction of VAT throughout the GCC has seen companies in the region turn to consulting firms and accountancies to ensure they comply with the new tax regime. There are complex policy, risk, operational and IT considerations businesses must take into account and the Big Four professional services firms are playing a leading role in helping them do so.

This rush towards VAT compliance is accelerating the digital transformation processes undertaken by GCC companies. Regional tax authorities are enforcing the new VAT demands on increasingly sophisticated digital platforms that demand significant digital capabilities from tax-paying companies in return.

At a recent MENA tax conference held by EY, the firm found that 77% of delegates believed digital technology will have a significant impact on the way authorities collect, administer and enforce taxation. Therefore, individual businesses will have to adapt the way they collect, format, file and report VAT information or risk being frozen out of the new tax order.

“The overwhelming view is that VAT compliance has actually accelerated the digital transformation of companies across the GCC,” said Sherif El-Kilany, MENA Tax Leader at EY. “So in addition to being a significant revenue stream, the roll out of VAT is now clearly seen as a means of modernising the economy and putting the digital journey on the speed track”.

“Almost all tax professionals polled at our tax conference revealed that their tax administrations in MENA have digitalised or are in the process of digitalising their operations,” El-Kilany added. 

VAT compliance is driving digital transformation in the GCCThere are concerns, however, that the technology harnessed by the tax authorities may be an evolutionary step beyond what many small and mid-sized enterprises can handle. This is especially the case with the transparency requirements – which more than 75% of EY’s delegates expressed concern about.

“VAT implementation requires a significant commitment of resources and some organisations do not have the systems, processes and people in place to enable them to apply VAT accurately and efficiently,” said David Stevens, GCC Tax Implementation Leader at EY.

“Most local businesses did not have VAT capabilities already built into their IT systems, while international businesses have had to introduce unique local VAT rules and codes into their ERP systems.”

EY’s poll of delegates found near unanimous concern that more tax transparency would translate into more disputes and ultimately damage their tax risk profiles. But these fears look set to be overshadowed by the metamorphosis of the tax collecting software, which looks set to jump into the realm of cloud-based solutions.

This means that accountants and lawyers will soon be replaced by robotics and AI experts as the GCC tax authorities employ more advanced technology, says El-Kilany. In his vision, consultancies will help clients comply with their VAT and transparency requirements by developing digital implementation strategies that could make paying tax a smoother process than ever before.

“In the future, companies will report and pay their taxes faster, and in turn, will resolve any issues they face faster. The technologies to make this happen are emerging onto the finance scene globally; they’re touching every industry,” El-Kilany concluded.