VAT expected to be a flat 5%.

Jojo Puthuparampil is a business news writer for Inc. Arabia.

Despite administrative and technical challenges, the six Gulf Cooperation Council (GCC) countries are planning to introduce a 5% value-added tax (VAT) at the beginning of 2018, according to a United Arab Emirates (UAE) finance official.

As a means to enhance non-oil revenues, GCC nations, whose finances are battered by declining oil prices, have already made plans to adopt VAT by early next year.

However, economists and officials have previously opined that simultaneous introduction in all countries may not be feasible as creating the administrative infrastructure to collect the tax remains a challenge.

It is also difficult to train companies to comply with the news tax in a region where taxation is minimal.

Now GCC governments are planning for early, simultaneous adoption, Younis al-Khouri, under-secretary at the UAE finance ministry, said.

By January 1, 2018, we are aiming to adopt 5% VAT across the GCC, he said.

Asked whether some sectors in the UAE might be exempt from the tax to reduce the drag on the economy, Khouri said the government is aiming for a 5% rate across the board but parts of seven sectors–education, healthcare, renewable energy, water, space, transport and technology–might get special treatment.

Khouri said the UAE government expects around Dhs12 billion ($3.3 billion) of revenues from the tax in its first year. That would be about 0.9% of the UAE’s gross domestic product of $371 billion in 2015.

AT the beginning, authorities will seek to register all companies with annual revenues exceeding $100,000 for the tax, and anticipate 95% or more of companies will comply in the initial stage.

Revenues from the tax may increase gradually with economic growth but the government is not at present considering any increase of the tax above 5%, Khouri said.

However, UAE had reportedly ruled out plans to impose corporate and income tax.

Accounting firm Ernst & Young recently said VAT will considerably enhance revenues per year for the UAE and other Gulf Cooperation Council (GCC) countries.

VAT at 5% will generate an extra income of more than $25 billion (Dhs 91.8 billion) every year for the six GCC countries, which will be substantial enough to boost infrastructure spending in the region.

While the introduction of new tax on goods and services may seem daunting to consumers and businesses, the overall impact is not that huge, according to David Stevens, VAT implementation leader at EY.

A significant chunk of companies may not be able to start collecting VAT by the go-live date. Considering the work that needs to be done to update their systems and processes, many firms may take some time to transition into the new tax environment.

However, failure to get everything ready by companies by January 2018 may lead to transaction and sales issues.

Businesses that are not ready by the VAT go-live date may suffer fiscal consequences from the inability to pass on the underlying VAT to the end customer. All GCC countries are expected to have implemented VAT by the end of 2018, according to EY.

GCC members are UAE, Saudi Arabia, Kuwait, Qatar, Oman and Bahrain.