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How VAT may impact the retail, auto and financial services industry

October 2016

October 5, 2016 | 15:30 | Dubai

To help businesses in the Gulf Cooperation Council (GCC) countries understand the potential impacts of the implementation of VAT, Deloitte in the Middle East is issuing a series of whitepapers entitled “VAT in the GCC – Insights by industry” designed to provide a greater understanding of the impacts of the tax on specific industry types. In the first whitepaper, “VAT in the GCC – Insights by industry”, Deloitte breaks down the impacts of VAT implementation in different categories, allowing readers to understand the upcoming changes, and highlighting the identification of what needs to be done to take a business from its current state, to the post-VAT implementation state.

VAT impact on the retail industry
The introduction of VAT in the GCC poses a serious question for all retailers. According to Deloitte, some retailers may actually be better off only passing a smaller proportion of the increased cost on to their customers and suffering the increase themselves in an effort to retain market share. “Alternatively, many may, as an initial marketing ploy, also offer to cover the full amount of the VAT in order to keep volume of sales at a reasonable level during the settling-in period” according to Bruce Hamilton, Deloitte Middle East Consumer Business Industry VAT leader.

VAT impact on the automotive industry
“A business issue that retailers need to ponder is what will happen on the night of 31 December 2017, and the same applies to automotive,” said George Campbell, the Deloitte Middle East Automotive Industry VAT leader. “The answer to this is that any self-respecting budget conscious shopper will consider perhaps accelerating a purchase, in order to attempt to avoid the VAT cost.”

According to the Deloitte VAT whitepaper, one operational issue will be how dealers respond to a likely spike in demand in the run-up to the introduction of VAT. The other side of this is that there is likely to be a glut of second-hand cars coming onto the market as consumers ‘flip’ them in order to take on their new vehicles.

Dealers will need to make sure that customers are not disappointed when trying to make faster purchasing decisions than normal. Stocking the right vehicles at the right specification will be key – vehicles ordered prior to, but delivered after, implementation are at risk of being subject to a VAT surcharge.

VAT implementation on the Financial Services & Insurance Industries
There are many challenges associated with taxing the financial and insurance services. “They are perceived to be difficult to tax; the “value” for VAT purposes, particularly in the context of margin-based transactions, is almost impossible to determine accurately and consistently on a transaction-by-transaction basis. As a result, VAT exemption is often a preferred policy approach” said Stuart Halstead, Deloitte Middle east financial and insurance industries VAT leader.

To view the full whitepaper, please visit the following link:

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