Taking the next logical step in a VAT environment

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At some point, GCC economies will need to give thought to tax on income

Western economies appear to be edging away from globalization and embracing nationalism, yet again, as evidenced by President Trump’s election as well as the Brexit vote.

One could argue that these events may have been induced by social frustrations of the status quo, which is ultimately fuelled by the need for change in respect of increasingly unstable economic structures ridden with cyclical crises.

In the midst of these events, there are many historical events that young countries could be assessing while building their economies.

In most countries, the two thickest strings tying citizens to their governments could be, possibly, employment and taxation. These matters are key to achieving local political stability which, in turn, allows for the opportunity to pursue economic prosperity.

Developed economies have been dealing with growing unemployment issues since the global financial crisis and this is where young countries — such as the six oil-based economies that comprise the Gulf Cooperation Council (GCC) — could be learning from.

The GCC countries are in a position to make proactive decisions to prevent history from repeating itself.

For example, the US’ capitalist economic regime created a highly competitive business environment which benefited consumers.

Cost cutting

US corporations began implementing creative cost-cutting strategies to enhance their market share, such as the migration of production units to lower cost jurisdictions.

Such a strategy contributed to the global success of US corporations.

However, the opportunity cost at hand could question whether a revision is imminent. Employment opportunities in the US have become increasingly threatened by the closure of US-based production units across various industries.

As a result, tax revenues from individuals were impacted and the government had to increase the corporate tax rate to subsidise the loss.

Vicious circle

As the vicious circle continues, the higher corporate tax rate posed further challenges to the already strained corporate ability to offer employment opportunities. In the meantime, social welfare costs are on the rise due to growing unemployment.

President Trump promised to bring “American” jobs back to the US by many fiscal and regulatory amendments, including reducing the tax rate on products manufactured by US brands within the US and, on the other hand, increasing it on US products manufactured abroad.

The Trump administration is yet to provide additional details to support this strategy and seize the ongoing confusion created by its announcement.

As it stands, the strategy currently stipulates that non-US brands operating in the US (with production units outside the US) will be offered a lower tax rate than US corporations producing elsewhere.

While the US is struggling to identify an appropriate balance between the individual and corporate income tax rate, GCC governments are manoeuvring their economies through lower oil prices and political turmoil.

The concept of taxation is slowly being introduced in the region such as the UAE’s Value Added Tax scheme.

Although some GCC countries, including the UAE, explicitly indicated that it is not currently assessing the possibility of imposing direct corporate and/or individual income taxes, the thought is looming in everyone’s mind.

GCC: Developed economy status

As the GCC states are striving towards “developed economy” status, it is becoming clear to them that income taxation forms the backbone of any developed economy.

The GCC states could begin balancing future tax issues by making decisions today.

In 1985, Italy passed the Marcora Law which allows unemployed citizens to form coalitions and take advantage of their accumulated welfare benefits to incorporate an employee-owned corporation.

The law reduces risks stemming from balancing individual and corporate income tax rates by combining taxed parties into one.

Furthermore, each GCC state has been, for decades, attempting to manage the single most prevalent employment issue among the GCC — the citizens’ over-dependence on government jobs.

As per the Labour Force Sample Survey 2014 conducted by Qatar’s Ministry of Development Planning and Statistics, 81 per cent of Qatari citizens who are active in the workforce are employed by the government.

This phenomenon adds further pressure on GCC governments. Decisions based on the spirit of the Marcora Law could potentially curb the growing dependence on government jobs and simultaneously manage risks arising from corporate/individual income taxation inequalities.

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VAT imperils Dubai’s diamond trade, DDEchairman warns

Loose diamond wholesalers work to tight margins, and every 0.25% counts, Peter Meeus says

Dubai: VAT on loose diamonds will imperil the diamond trade Dubai has spent 15 years building, Peter Meeus, Chairman of Dubai Diamond Exchange (DDE) said on Monday.

Speaking at the opening day of the Dubai Diamond Conference, at Dubai Multi-Commodities Centre’s (DMCC) Almas Tower, Meeus launched a stark warning about the state of the diamond trade worldwide: “Winter is coming.”

Meeus said that later this week DMCC representatives would meet with federal officials to try to convince them for giving loose diamonds a zero-per-cent tariff in the UAE VAT, to become active on Jan. 1, 2018.

“That would allow the UAE diamond trade to grow further in the search of excellence,” he said. “The same zero-per-cent tariff is currently the standard in all other diamond centres across the world.

“I’m not really happy to mention this problem in public, in our own conference and in the presence of so many international visitors, but at the same time it has to be said loud and clear: if this challenge is not solved, all that we have done in the last 15 years will have been for nothing.”

Even without VAT looming on the horizon for UAE-based traders, his portrait of the current state of the international diamond trade was bleak.

Alongside slow growth and increasing sales of man-made diamonds, there was a liquidity crisis and a growing insistence on cash sales in an industry previously reliant on credit.

“The question we must ask ourselves is how did a trust-based industry, wholly dependent on trust-based finance, get into such a calamitous reality. Ladies and gentlemen, the writing has been on the wall for quite a while. The lack of any meaningful profitability and the unstable, if not long-term, decline in polished diamond prices have made the repaying of hundreds of millions in debts a question.

“The bottomline is that the diamond manufacturers bought more rough diamonds, paid more for rough diamonds, and sold fewer polished diamonds at lower prices.”

Retail sales of polished stones had grown far below the levels of GDP growth since 2011. Challenges facing the industry also include the small but growing threat of man-made diamonds, he said. In addition, DMCC chairman Ahmad Bin Sulayem pointed out, millennials didn’t seem to be buying diamonds. In his opening speech, Bin Sulayem cited a study showing 37 per cent of millennials didn’t trust brands or big business.

“It’s a different world,” he said. “And it goes beyond just advertising and marketing. What do we as an industry have to change to better appeal to this demographic?”

But Meeus reserved his most dire prediction for the UAE’s plans to impose VAT on loose diamonds, which he said could undo Dubai’s meteoric rise as a diamond hub over the last 15 years — from $300 million (Dh1.10 billion) in trade in 2002 to $26 billion in 2016, putting it behind only Antwerp and Mumbai.

“The announcement of possible VAT on loose diamonds would strongly jeopardise this,” he said. “The possible cost implications of VAT introduction for UAE traders are huge, because in a business where profit margins are very thin, every quarter of a per cent is important to traders handling billions of dollars to decide where to ship. Places like Hong Kong, Panama and Singapore will be considered alternatives if value-added taxes were to be put on loose [diamonds].”

The imposition of VAT by Amsterdam in 1921 led to its eclipse by Antwerp as a diamond hub, he said.

Fuel costs less in US than Dubai, Abu Dhabi

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Drivers in the U.S. oil hub of Houston can fill their tanks for less than the cost in Abu Dhabi and Dubai for the first time since 2008 as falling crude prices push Middle East exporters to cut government fuel subsidies.

The price of the cheapest grade in the United Arab Emirates, of which Abu Dhabi is the capital, is 1.51 dirhams per liter ($1.55 a gallon) for January, according to the country’s Ministry of Energy. That compares with $1.32 a gallon for the lowest regular fuel in Houston, data compiled by GasBuddy.com show. Houston drivers haven’t paid less on average than Abu Dhabi pump prices since 2008, according to the data. Dubai is the second-largest emirate in the U.A.E. which has the same fuel prices nationwide.

Benchmark Brent crude prices have dropped 16 percent this year after declining in each of the past three years. That’s cutting pump prices for drivers across the U.S., while having the opposite effect in Persian Gulf countries, which supply about a fifth of the world’s oil. Saudi Arabia, the U.A.E., Qatar, Oman and Bahrain have reduced or eliminated fuel subsidies over the past six months.

 The U.A.E. pumped 2.94 million barrels a day last month, according to data compiled by Bloomberg. Texas produced 3.5 million barrels a day in October, according to the latest available data from the U.S. Energy Information Administration.-Bloomberg

VAT to further distress retailindustry

By K Raveendran| A clear assessment of the impact of the introduction of value added tax (VAT) in the UAE is not available yet, but it is fairly clear that it will have serious adverse results for the retail industry, which is already suffering a dip in demand.

Minister of State for Financial Affairs Obaid Humaid Al Tayer announced the other day after a joint press conference with IMF Managing Director Christine Lagarde that the UAE will implement VAT at the rate of five per cent from January 1, 2018. The revenue yield in the first year is expected to be AED12 billion.

VAT essentially being a consumption tax, most of this revenue will come from the retail and services sectors. To that extent, it would mean retail prices would go up and by implication there would be a proportionate or even larger drop in retail spending, apart from job losses.

It is not known whether any study has been undertaken about the impact of VAT with specific reference to the UAE or even the GCC because the issue has so far been approached only from the perspective of additional revenue generation in the wake of the slump in oil prices.

But a study by Ernst & Young on VAT in connection with the introduction of such tax in the US showed that the burden would shift forward to consumers through higher consumer prices and a consequent fall in consumption. By increasing consumer prices, the VAT also reduces real or inflation-adjusted wages, which would affect labour supply.

The Ernst & Young study estimated that the introduction of VAT in the US would reduce retail spending by $2.5 trillion over the next decade. Retail spending would decline by almost $260 billion or 5.0 percent in the first year after enactment of the VAT, it said.

The report was particularly harsh on impact of the VAT move, saying it would pose serious risks to the US economy itself. The drop in retail spending, jobs, and GDP under an add-on VAT has the potential to further weaken the economy in the near term, rather than strengthen it. Many countries have reduced their VATs in the face of the recent economic downturn, it noted.

The report went to the extent of suggesting that it would rather be more prudent to cut government spending to reduce budget deficit than cause a depressing effect on retail spending through the introduction of VAT.

“Reducing the deficit through lower government spending would have such more favourable economic effects – more jobs, higher GDP, a better standard of living for Americans, and a less depressing effect on retail spending – in both the near term and in the longer term,” Ernst & Young said.

According to the management consultancy, perhaps the most troubling aspect of a deficit-reducing VAT is that its negative effects on GDP, consumer spending, and employment would occur in the face of the current economic climate of weak economic growth, high unemployment, and low consumer confidence. These would raise additional economic worries, rather than shoring up the weak economy, it said.

The introduction of VAT will also pose serious challenges about its administration as the UAE or the GCC countries do not have any infrastructure in place for administering such a tax structure. Also, there are issues about collection, exemptions, procedures etc both at a central administrative level, manufacturing and distribution levels as well as at the retail outlet level, apart from the realignment of existing taxes such as the municipality tax for hotels and special taxes on goods like tobacco. A major challenge would be to equip the retail trade to handle the complex operation.

  How to Be an Accountant

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If you think accountants are just number crunchers, think again

What does an accountant do? Accountants are the puzzle masters, the problem solvers, the solution creators at an organization. They ask questions. "What happened here and why?" "How can we fix this?" They're truly responsible for the "financial health" of an organization.

So, what is accounting?

Accounting is the process of identifying, recording and communicating financial information to interested users. Accounting is a systematic way of collecting transactions and processing the information to communicate it to those users who might have an interest. There are internal and external users. Internal users might be a manager who wants to know how his or her division is doing. An external user might be a stockholder who has invested in the company and wants to see how the company is performing

So, what does an accountant do exactly?

It all depends on what type of accountant you are:

Financial accountants record transactions, prepare financial statements for outside users (investors, creditors, regulatory agencies, etc.) and interpret an organization's financial health

Management accountants record and financial information for internal users (managers, etc.), make recommendations for operational efficiencies, and can assist in capital planning, pricing and budgeting

Tax accountants do personal and/or corporate taxes, interpret tax law and help with tax planning

Auditors/forensic accountants examine financial records for fraud/misstatement, issue audit reports, and ensure compliance with various laws and regulations

Government accountants record transactions, prepare financial statements and interpret the financial health of government.

 There's also a difference between private and public accounting

A private accountant will work for a single organization and they do various tasks such as recording transactions, preparing financial statements, budgets, etc.  Those who work on public accounting are Certified Public Accountants (CPAs), whereas those who work in private accounting do not necessarily have this designation - although they can. In fact, sometimes those in public accounting leave to work in private accounting for a specific company. Some accountants can be Certified Management Accountants. They are focused on private accounting

Accounting Skills

Accounting is an ideal field to enter if you're great with numbers. You have to have analytical skills and be comfortable with numbers. A good accountant is someone who pays close attention to detail

You need to understand what the numbers mean - not just know the math. The numbers all relate to an organization's finances, meaning an accountant understands when the company is doing well or when it needs to make some adjustments.

But there's more to accounting than that. You also have to have good communication skills. You must be able to communicate complex information to non-accountants. Find any list of soft skills that employers are seeking, and communication is most likely at the top of the list.

Accountants must have good skills in problem solving, big-picture thinking, attention to detail, critical thinking and be able to collaborate with other parts of an organization. Because their job affects so many parts of a company, skills for accounting positions often go far beyond actual accounting.

Then there are ethics. Ethics play a huge role. Someone who is ethical is a great quality to have as an accountant. An accountant must have a solid grasp of generally accepted accounting principles, as well as an understanding of an organization's goals and code of conduct.

Accounting Jobs

The accounting profession is filled with opportunities, and an accounting degree can arm you with the necessary skills and competencies to succeed in them.

The types of roles graduates may be prepared for depending on the degree they earn:

Associate in Accounting: accounting clerk, bookkeeper, payroll clerk or accounting assistant

Bachelor's in Accounting: accountant, auditor, tax preparer or Certified Management Accountant

Master's in Accounting or MBA in Accounting: Certified Public Accountant, management, senior level accountant or consultant.

If you want to go into public accounting and become a Certified Public Accountant, you need to have 150 credit hours. You typically will earn 120 credits with a BS, and then you can earn 30 more credits in a graduate program. You also need to have taken a certain number of accounting courses to be eligible to become a CPA. So a BS degree with plans to get your master's is key. If you plan to go into private accounting, then a BS degree will be sufficient. You could also consider earning the CMA designation, which is a highly respected credential for management accounting.

The demand for accountants never seems to go away.

It is an excellent field to go into. Whether the economy is good or bad, every organization needs to keep track of their finances, so accountants will always have great job opportunities.

Beyond the wide range of roles, being an accountant never gets boring.

It's a very exciting field. Despite the image one may have of accountants, it is a constantly changing field as rules and guidelines change all of the time. A good accountant never stops learning.

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Abu Dhabi counters oil slump with $10bn bond sale

Second bond sale by the emirate since oil prices slumped in mid-2014

Abu Dhabi has raised $10 billion (8.5 billion euros) in a rare international bond sale, it said Tuesday, amid efforts by Gulf states to plug deficits caused by low oil prices

It was just the second bond sale by the emirate, which has the Gulf's largest sovereign wealth fund, since oil prices slumped in mid-2014

Abu Dhabi's finance department said the bonds were issued in three tranches maturing in five, 10 and 30 years, with interest ranging from 2.5 to just over four percent

The richest of seven sheikhdoms that make up the United Arab Emirates, Abu Dhabi sits on the bulk of the federation's oil wealth

In May last year, it raised $5 billion with its first bond sale in seven years

Almost all the oil-rich Gulf Cooperation Council states, including OPEC kingpin Saudi Arabia, have resorted to debt markets to finance budget shortfalls since an oil price collapse slashed their revenues by hundreds of billions of dollars

Last week, Saudi Arabia raised $12.5 billion from an international bond sale

Online registration for VAT in UAE now open

Businesses must register if their taxable supplies exceed Dh375,000 annually

Dubai: The UAE’s Federal Tax Authority (FTA) announced that online registration for Value-Added Tax (VAT) is now open through the Authority’s website ahead of the tax’s implementation from January 1, 2018

Businesses must register for VAT if their taxable supplies and imports exceed Dh375,000 per year

Businesses with taxable supplies and imports that are less than that mandatory minimum, but exceeds the voluntary registration limit of Dh187,500 annually, can optionally register for VAT

FTA urged businesses with an annual turnover of over Dh150 million to register before October 31, 2017. All businesses with an annual turnover exceeding Dh10 million should register before November 30, 2017

The registration portal is available 24/7 to facilitate the registration procedures for all businesses from sectors that are subject to VAT

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