Al Ghurair says banks and insurance firms need six months to prepare once implementing regulations are published.
Financial institutions in the United Arab Emirates are not yet ready for the implementation of value-added tax, which is set to come into effect within weeks, a senior UAE
“We call to postpone implementing the VAT to give time to all the sectors to implement it correctly, whether in banking, insurance, or other sectors,” AbdulAziz Al Ghurair, Chairman of the UAE Banks Federation told reporters on the sidelines of a banking event held in Abu Dhabi.
“Neither banks, nor insurance companies are ready,” he added speaking in Arabic. “We need at least six months from the time we receive all the detailed implementing regulations to be ready, along with details for each sector, and how to calculate the tax for each product,” he added.
The UAE’s VAT law was published in August, but the Implementing Regulations have not yet been issued.
Earlier this month, the director-general of the new Federal Tax Authority (FTA) of the UAE warned that businesses eligible for the new value-added tax need to register before December 3 to avoid being liable for paying the tax themselves. The FTA by law has to respond to the application within 20 business days.
While all of the VAT-related workshops that have been conducted by the FTA provide general guidelines, more detailed regulations need to be available and on electronic systems, not just on paper, said Al Ghurair, who is also the CEO of Mashreq Bank.
“We support VAT, but we need the rules and regulations to be very clear so we have time to implement it on our platforms and technology,” he emphasised.
While some have called for an 18-month postponement, any extension between 6-18 would be welcomed, he said.
“For retailers, it may be easier to get ready for VAT, but it is very difficult in contracting, banking and insurance,” said Al Ghurair.
Speaking about the impact that the introduction of VAT would have on lending to small and medium enterprises, Al Ghurair told Zawya in Arabic: “All types of loans are exempt from VAT, but a 5 percent tax will be imposed on banking fees. Usually, 40 percent of banks’ income on average comes from fees,” said Al Ghurair.
But VAT has a positive impact on the banks in one way, he said.
“Our SME customers used to inflate their turnover…But with VAT coming, there will be more accurate financial reporting done by the SMEs and we can base our lending to them on accurate figures.”
All six Gulf Cooperation Council countries agreed in 2016 to impose a five percent VAT on goods and services, but so far only UAE and Saudi Arabia have announced that they will implement the tax on January 1, 2018. <readmore>
By Nada Al Rifai, ZAWYA
© ZAWYA 2017