On the context of the implementation of VAT in Bahrain, every business must know about the VAT and how it works on your business.
Estimation in VAT
The VAT would be payable on the ‘value’ of supply. As per the GCC VAT Agreement, the value of supply shall be the value of contemplation less the tax and includes the value of the non-cash fraction of the consideration determined according to the reasonable sell value. The cost of the supply shall include all the fixed cost imposed by the taxable supplier on the customer, the sum payable as a result of the Supply and all the Taxes including Excise Tax, but excluding VAT. Normally, reductions given are permissible as the deduction from the value of supply subject to realization of prearranged setting.
Input tax credit in VAT
Value Added Tax scheme develops its name to the reality that it preserves in its framework the idea of input tax. Input tax is the recoverable VAT paid on procurement of goods and services.
Let’s take an example, goods worth 210 (inclusive of 10 as VAT), are sold for 420 (inclusive of 20 as VAT). In this case, 10 is referred to as input VAT whereas 20 is referred to as output VAT. In the VAT regime, the supplier is liable to deposit net VAT with the Government. Thus, in the example supplier is liable to deposit VAT of 10 (Output VAT less input VAT) with Government. This is tabulated in below:
|Particulars||Goods sold to A||Goods sold to B|
|VAT applicable @ 5% (I)||10||20|
|Input Tax Credit (II)||Nil||10|
|Net VAT payable (III = I- II)||10||10|
Though, at a first-sight stage, above mentioned emerges simple, in VAT regime, the difficulties bring in up due the fact that, characteristically, goods or services used for individual use or exempt supplies is denied. Herein, in VAT regime understanding issues produce such as business dine with clients, is it personal expense or official expense or both.
Similarly, VAT laws restrict VAT credit in respect of employees connected expenses or motor vehicles, catering etc. related expenses. Further, there could be a ceiling on the receiving of goods given away by way of present or free samples. Thus, businesses need to factor in availability, non-availability of credit. Further, businesses have to to make sure that the circumstances prearranged to receipt of credit are fulfilled. It is relevant to remember that inaccurate VAT credit leads to punishing penalty whereas non-availability of credit leads to tax cascading. Thus, business needs to find the right balance between these two to navigate effectively in the VAT system.
Rate of VAT
As per Gthe CC VAT Agreement, the standard rate of VAT is 5% unless exemption or zero-rate is applicable. The businesses have to to be cautious indecisive whether the goods or services supplied by them are liable for standard rate, zero rates or exempted.
VAT skeleton consists of-of Decree Law and Tax Regulations
In VAT system, naturally the key necessities (such as requirements governing levy of VAT, registration, place of supply, time of supply etc) is enclosed in VAT Law whereas procedures/ processes (such as process of registration, explanation for what qualifies as goods or services etc) are typically enclosed in executive/ implementing Regulations. Additionally, in a VAT system, the Government may issue Decrees or Cabinet Decisions for specific aspects of VAT law. Further, the Tax Authorities issue Guides, flyers, clarifications on social media (Twitter etc).
During realization of VAT in a country, typically, these portions of VAT legislation are available at a singular spot of time (such as Decree Law may be issued first followed by Regulations). Also, through a phase of time, based on the response from taxpayers, the Authorities, clarify various aspects through seminars/ workshops.
Thus, it can be seen that in usually, the VAT law is enclosed in different pieces of law and thus, taxpayers need to ensure that they join all these portions of VAT complex image to see the correct picture and take appropriate VAT position on the business transactions
VAT introduction also brings interference
All over the world, businesses are facing distraction due to either technology or quick tempo of the transform. While technological interferences take over the public interest, interruption brought by VAT typically goes ignored. Whilst technology disturbances can’t be foreseen, VAT is expected (as expected dates are known). However, the introduction of VAT, like any change, offset systematic analyses and uncertainty about its likeliness of execution. To make sure business benefit from near the beginning again, top management/ owners/ CEO should rather use the aforementioned worries about VAT execution, as coal to kick off the discussion about the impact of VAT and guide their organizations successfully to VAT-era. Thus, to ease the disturbance likely to be brought by VAT introduction, its necessary for business leaders to carry on early for VAT impact analysis than ponder over likely dates!
Get ready sketch for each squad!
VAT impacts each sector in an organization differently. For example funding group will be required to conclude the VAT implications/positions on different income and expenses streams, the sales squad will need to converse to the customers about the VAT impact. Similarly, the procurement team will need to talk about with vendors the VAT implications. Thus, as the steps fluctuate department/ team-wise, its significance for the group to be equipped with a department-wise step plan for VAT implementation. This will make certain that each department/ team be acquainted with their particular steps/ role in the entire domain of VAT implementation and hazard of missing out key steps reduces considerably