VAT is a consumption-based tax (charged to the buyer and eventual user of the goods and services). A business entity should collect and remit the tax to the government. Given that, VAT has an impact on cash flows and hence can effect profitability if not properly managed. Accounting and operational software are accordingly needed to be enhanced and tailored to ensure VAT compliance.
We believe that proper guidance should be there for businesses to implement VAT and to develop a sustainable tax strategy.
Key considerations for VAT implementation include the following areas:
- Evaluation of existing business models, transactions and processes to understand the impact on financial (margins, pricing, cash flows), operational (supply chains/processes, transaction flows), and legal (contract, business structures) aspects of the business.
- Once the evaluation is performed, then the procedures are to put in place for seamless and accurate VAT reporting and compliance. Commitment from senior management and building a structured and uniform approach are the key factors to facilitate VAT implementation.