The businesses in Bahrain who come under the VAT threshold are now hurried in updating their accounting system to be in line with the VAT system in the Kingdom. The ministry has strongly insisted the penalties on non-compliance and undoubtedly declared that there will be no relaxation for the tax evasion. It would be better to go through the compliance matters in this new tax environment in the Kingdom of Bahrain for easy functioning of Tax matters for the businesses.
Top-down or bottom-up method for VAT
On the features of it, VAT prologue materializes to be just a tax change. The peripheral blast about VAT attached with an in-house discussion on VAT, makes peak administration take steps towards VAT. Normally, the ladder taken by supervisors occupies distribution few of the accounts/ finance members to attend initial VAT training and discussion on VAT. While this gives the accounts/ finance team members an extra benefit to translate VAT early. However, this also means that VAT transition is perceived as ‘tax’ change and lead by the finance team.
Further, in organization language, ‘top to bottom’ approach (i.e. approach being formed at a strategic level and then put into practice across different verticals/ subdivisions of the organization) is better to hold the masterpiece change like VAT introduction. However, when VAT change is escorted by only one squad (i.e. accounts/finance team) then the opportunity of omitting the big picture and tactical allegations amplifies considerably. Thus, it is vital that the CEO/ top management leads an exclusive team from across all departments (finance, supply chain, product pricing, sales, procurement, legal, commercial, logistics, information technology, HR etc) than leaving the same to finance/ accounts team.
Synchronization amongst the group is significant for VAT execution
As VAT execution engages several squads across numerous locations, external vendors and consultants, it becomes critical to have to bring together in place across such wide-ranging teams. For example during VAT implementation finance team is required to harmonize with ERP/IT team to ensure that ERP/ IT systems are upgraded to lever VAT and produce VAT reports. In such cases of synchronization, it’s practical that the finance/accounts team waits for ERP/IT team to approach them while ERP/IT team waits for an instruction from the finance/accounts team. This was possible to hold up the VAT execution project. Thus, deficiency in of co-ordination could obstruct the execution harshly. Given this, a suitable time and labors need to be depleted on envisaging the steps in VAT implementation, likely steps which needs co-ordination amongst wither two teams or team members, possible challenges in coordination and addressing the challenges in advance.
VAT figures technology!
The VAT is known to have a masterpiece impact on Information Technology (IT)/ ERP system. IT/ERP is the main area for a business entity, as no particular of the fact whether the organization is ready or not, on the very first day when VAT is introduced, the IT/ERP system has to be ready to generate VAT invoices. If the IT/ERP system is not set up to produce VAT invoices suitably then it can factually bring the whole business to be idle! In addition, features like a blueprint of VAT invoice and its contents become very significant during the transition of IT/ERP system to VAT. Further, VAT also impacts various masters in IT/ERP like vendor master, customer master, tax master etc. Similarly, tax ledgers and entries are required to undergo a change. Even more, the IT/ERP system requests to produce various registers like a supply register, procurement register, input tax credit register, import register etc. Given the aforementioned, business entity required to envisage all the likely changes in ERP system and aptly design the same to make sure that nothing is neglected out. Thus, to evade the hazard of disturbance of business, it is wise that early ERP revision should be approved out to realize how the system relocation for VAT will be carried out.
Evaluation ERP systems
The data for organizing VAT returns are produced from the ERP or accounting system. If the ERP system is able to produce the obligatory particulars for VAT returns then the threat of erroneous VAT returns decreases. However, although it’s been practical that many times, either the ERP systems are either stiff or VAT laws are too intricate to be built up in ERP system. Thus, not only before foreword of VAT but also after VAT is executed, the business entity needs to appraisal ERP or accounting systems and configure them to produce the obligatory VAT reports or particulars.
Further, there are occurrences from VAT authorities, wherein, the VAT payers, in-spite of having an ERP system, accumulate the information for VAT returns on the physical source (i.e. fusion of man and machine). However, the hazard of omitting vital ledgers or numbers is high in case of manual preparation of details for VAT returns. Consequently, it is decisive to evaluate the existing ERP system to assess and make certain that the necessary reports, as compulsory for the preparation of VAT returns are produced from the ERP system itself. additionally, it’s significant for the business entity to analyze, at customary break (say every six months) the reports produced from ERP system and whether they need to be improved (to reduce the manual intervention). Internationally, many VAT jurisdictions could not give sufficient point in time for business entities to device up for VAT.
In few jurisdictions, business entities got less than six weeks to prepare for VAT and few others even less than a week! The cause for this lack of time is that, characteristically, even the Authorities/ Government are engaged in evaluation and making the last-minute changes to the draft law/ regulations as its awkward to make changes in it after introduction. Further, in most jurisdictions, before VAT introduction, Government had invited submission from business entities whereas business entities were waiting for final VAT law to provide suggestions! Thus, business entities should carry out the VAT impact analysis at the earliest so that it can share the suggestions/ feedback with the Government.