The VAT Marathon – Qatar- The Fifth State to introduce VAT

Back in 2017, the six GCC states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) signed the common VAT agreement. It was agreed that each GCC Member State would introduce a VAT system at a rate of 5%. Within few months, the UAE and Saudi Arabia became the first states to implement VAT at the standard rate while other GCC nations subsequently followed. Qatar and Kuwait are the only two states that deferred the introduction of VAT.

VAT is a Value Added Tax levied at multiple stages of the journey of goods and service from its origin to final consumption. In laymen’s term it is a tax on ‘Value Addition’ as the goods and services move across the supply chain to the final consumer. The full burden of the tax is borne by the final consumer.

Here a quick glance into timelines of introduction of VAT by various GCC states.

  • The UAE and KSA introduced VAT on January 1, 2018 at a standard rate of 5 percent.
  • Bahrain joined the two states and implemented 5 percent vat on January 1, 2019.
  • On July 1, 2020, KSA increased its standard VAT rate from 5 percent to 15 percent.
  • Oman was the fourth state to introduce VAT at a rate of 5 percent since April 2021.

The buzz in the region is Qatar is expected to introduce VAT in late 2021 or early 2022 depending on the stability of their economy, trade and other factors. In this article we brief you on the possible impact of this move on consumers and businesses in Qatar.

How it all started?

In an interview published in Al Sharq newspaper, General Tax Authority (GTA) President Mr. Ahmad Eissa Al Mohannadi confirmed Qatar’s commitment towards the introduction of VAT as per the GCC Unified Agreement. Mr. Al Mohannadi mentioned that the Value-Added Tax is currently under legislation, which led to the buzz in the market.

As the government continues to make progress with their regulatory legislative drafting, GTA has even commenced preparations to set up the state’s new tax administration system- Dhareeba. This integrated digital platform for managing tax transactions utilizes the latest SAP management technology. Even if the legislation is rolled out, it will take time for the infrastructure to be set for compliance.

Here are few highlights of Qatari VAT regime.

  • VAT registration threshold of QAR 364,000
  • Standard VAT rate of 5 percent
  • Imports subject to VAT Law
  • Exemptions likely for educational and health services
  • Monthly and Quarterly VAT reporting

The impact of VAT :

With VAT round the corner in Qatar, it will bring additional revenue to the government for improving the public services and infrastructural facilities. Here are some ways VAT introduction will have an impact on Qatari economy.

  • The introduction of vat will affect the overall cost of living in the region. This also depends on the spending preferences and lifestyle of individuals.
  • According to Earnst and Young, expert analysts believe the early impact of imposing VAT is expected to be negative. This is due to an increased rate of inflation which will bring a change in the spending habits of consumers.
  • However, in the long run, the VAT impact will be positive for consumers. This is because businesses will introduce products and services at competitive prices into the market and roll out discounts and promotions to attract consumer spending.

Certain sectors such as healthcare and education are most likely to have zero-rated tax. This means that consumers of these services will not be affected. Few supplies and services in the financial services and real-estate sector will be exempt. However, the clear picture about industries affected will be out only once the law is announced. It is unclear if medicines and other essentials will carry vat.

Concluding thoughts:

Even though there is no certainty about the exact date of VAT implementation in Qatar, businesses need to start planning their processes for compliance with VAT before the publication of the law and announcement of go live date.

The clock is ticking, and it is highly advised that companies contact experienced tax professionals to help them prepare for incorporating VAT into their business accounts and transactions.