Two of the countries in GCC, the Cooperation Council for the Arab States of the Gulf, decided to introduce VAT from January 1st, 2018. Out of the 6 countries in the GCC namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE), Saudi Arabia and UAE will be the first ones to get started with VAT. The rate for VAT is set at 5%. The businesses with an annual income more than or equal to Dh 375,000 are required to register for VAT system.

Value Added Tax (VAT) is a kind of general consumption tax levied on products and services in many countries all over the world. Given below are the reasons why GCC wanted a single VAT code:

  • Unified Market: All countries today wish to have better economic relations with their neighbouring countries. In this situations, having a single tax code that applies to all the GCC countries is helpful. It helps to simplify the process as companies would be able to calculate their expenses and revenue and, therefore, plan accordingly. This will help in encouraging trade and commerce and will make the system more transparent. It will also help reduce corruption as states will not be able to increase or decrease their tax codes as and when they see fit.
  • Transparency: The VAT system is more transparent. Borders become irrelevant and markets are made truly competitive. The fair taxation system for all parties ensures fair play and encourages to bring new entrants in the market. This boosts competition and brings out the best from all the respective players. It also helps in broadening the economy since new jobs are created.
  • Boosts the Economy: A strong stable economy is able to create jobs and prosper. It also ensures that the country has a healthy workforce. Countries that have healthy working populations see fewer disturbances and are able to grow at a steady pace. Countries that able to create new jobs each year can provide for their countries populations and gain immensely from them. Their liabilities become their assets and the respective country is able to realise its true potential.

The Indian government also just passed the landmark Goods and Services Tax (GST) with the intent of simplifying the tax code and making it more transparent. This is in the backdrop of the other countries passing similar legislation. GST can into effect in India in July 2017. Companies that produce ERP software for tyre dealers and other businesses make sure that the software adheres to similar tax codes. The software automatically calculates the cost, keeping the GST rates in view so that there are no requirements for any additional calculations for the business owners.