Food for thought: Smaller groceries in VAT scramble
Though the implementation of value added tax (VAT) in the UAE will result in brisk sales for groceries and smaller supermarkets, meeting the deadline in terms of organisational, operational and financial standpoints is an uphill task for its owners.
Despite numerous announcements made by the Federal Tax Authority (FTA) to register before VAT comes into effect, it appears that many groceries are unlikely to meet the deadline as many of them have yet to start preparations.
According to tax experts, items sold at groceries and small supermarkets will be subject to VAT. Advertised prices are required to be inclusive of VAT, per the law.
Without seeking external help or advisory services, it would be very difficult for groceries and supermarkets to meet the deadline, say tax experts.
Many owners of these establishments in Dubai and Sharjah told Khaleej Times that executives from auditing firms have approached them to offer their services, but they haven't started the process of maintaining sales/purchase records, implementation of technology for receipts and other miscellaneous steps they need to take.
According to the FTA, VAT will come into effect from 7am on January 1, 2018; companies who fail to maintain records will be penalised in line with the laws and regulations issued by the authority. The UAE is introducing a standard five per cent VAT in line with the agreement it reached with its GCC partners.
Mohammed Ali, a grocery owner in Al Majaz, Sharjah, says officials of a number of auditing firms have approached him but he hasn't started the process. He revealed that the companies who have approached groceries in Sharjah are offering their auditing services for a minimum of Dh1,000 a month.
Amr Ahmed, also a grocery owner in Sharjah, states that it's a tough task to keep a record of each and every product. He says not all groceries may be able to meet the Dh375,000 criteria for obtaining a tax registration number due to their lower turnover.
Spurt in sales ahead of VAT
Thomas Vanhee, founding partner at Aurifer Middle East Tax, says just like all other businesses, groceries will face challenges from organisational, operational and financial standpoints.
"Most importantly, they will have to make sure that they have the necessary processes in place on January 1, 2018, to collect VAT from their customers and pay it to the tax authorities, especially considering the large volume of transactions inherent to the sector."
Vanhee states that the most important question for the retail sector is how VAT will impact sales.
During the period leading up to the year-end, groceries and supermarkets are experiencing an increase in sales as a result of consumers stocking up on high-value products in order to avoid the five per cent increase in price as a result of the introduction of VAT. This may lead to challenges from a stock management perspective.
No impact on consumers
"Since the VAT rate is fairly low in comparison with other jurisdiction such as Europe, we do not expect VAT to greatly affect consumer behaviour. Therefore, we can expect the market to stabilise again shortly after the introduction of VAT," says Vanhee.
Considering the relatively unorganised sector, it would be extremely challenging for groceries to prepare and be ready for the new tax by January 1, states Girish Chand, director at MCA Management Consultants.
"If they have to reflect pricing inclusive of VAT, this would involve significant changes at the point of sale and also on the display counters. The current low level of documentation and record keeping in the sector also compounds the challenges in VAT preparedness," he adds.
Rakesh Pardasani, partner at RSM UAE, says maintaining proper books and records is key in VAT compliance, failure of which could attract heavy fines and penalties, in addition to losses because of incorrect VAT calculations and returns.
"Starting to maintain proper books of accounts is going to be the biggest challenge. Going forward, groceries have to issue a VAT invoice for every sale that they make," says Pardasani.
"They also have to keep every invoice that they receive from their supplier since those invoices will carry VAT which they can claim back against the VAT on their sales. And they have to regularly file returns and pay the VAT on their sales on a quarterly basis. All of this needs discipline and proper book-keeping."