IMF asks for VAT, in­come and prop­erty tax in GCC re­gion

The Pak Banker - - BUSINESS -

The in­ter­na­tional Monterey Fund has sug­gested the oil-rich GCC na­tions to in­tro­duce value added tax. Speak­ing at the two-day Arab Fis­cal Fo­rum, be­ing or­ga­nized by the Arab Mon­e­tary Fund, here in the cap­i­tal, Ms. Chris­tine La­garde, man­ag­ing di­rec­tor of IMF said the GCC re­gion can raise rev­enues from cor­po­rate in­come tax as well as from prop­erty and ex­cise taxes.

The oil pro­duc­ing re­gion that lost $340 bil­lion or 20 per cent of gross do­mes­tic prod­uct, to oil prices plunge in 2015, should con­tinue to in­vest in build­ing tax ad­min­is­tra­tion ca­pac­ity that could even­tu­ally al­low for the in­tro­duc­tion of per­sonal in­come tax. In her speech to the Fo­rum, the man­ag­ing di­rec­tor said the oil-ex­port­ing coun­tries have been heav­ily af­fected by the re­cent plunge in oil prices."Not only have oil prices fallen by around two-thirds from their most re­cent peak, but sup­ply and de­mand-side fac­tors sug­gest that they are likely to stay low for an ex­tended pe­riod. The size and likely per­sis­tence of this ex­ter­nal shock mean that all oil ex­porters will have to ad­just by re­duc­ing spend­ing and in­creas­ing rev­enue," the man­ag­ing di­rec­tor gen­eral said.

She said the fis­cal ad­just­ment needs vary from coun­try to coun­try. For in­stance, due to their pru­dent poli­cies, most mem­bers of the Gulf Co­op­er­a­tion Coun­cil are now in a po­si­tion where they can pace their ad­just­ment over sev­eral years and thus limit the im­pact on growth. "It is also worth re­mem­ber­ing that GCC economies have made large fis­cal ad­just­ments in the past," Ms Lar­garde said, adding that they can "do it again."

At the same time, she stressed that th­ese economies need to strengthen their fis­cal frame­works and re-en­gi­neer their tax sys­tems by re­duc­ing their heavy re­liance on oil rev­enues and by boost­ing non-hy­dro­car­bon sources of rev­enues. This would help bol­ster growth and job cre­ation and at the same time help to main­tain debt sus­tain­abil­ity and strengthen re­silience, she told the Arab fi­nance min­is­ters. It also pro­vides a unique op­por­tu­nity to de­sign tax sys­tems that em­pha­size fair­ness, sim­plic­ity, and ef­fi­ciency.

She asked the GCC bloc to start the rev­enue gen­er­at­ing ef­forts by putting in place a sim­ple sys­tem that ini­tially fo­cuses on VAT, at a low sin­gle-digit rate, such a tax could raise up to 2 per­cent of GDP. Add to this a greater em­pha­sis on cor­po­rate in­come tax, as well as prop­erty and ex­cise taxes. Progress is al­ready vis­i­ble in many coun­tries, as in Kuwait, for ex­am­ple, the IMF has as­sisted in the study and de­sign of broad-based taxes, such as VAT and busi­ness profit tax.

"This work has con­trib­uted to a na­tional di­a­logue on why and how Kuwait should di­ver­sify its rev­enue sources, "the Fund's top of­fi­cial said. Pro­po­nents of re­form ar­gue that this would al­low the coun­try to bet­ter man­age the fis­cal risks as­so­ci­ated with volatile oil prices, she said. In his re­marks on the oc­ca­sion, Obaid Hu­maid Al Tayer, Min­is­ter of State for Fi­nan­cial Affairs said that the GCC na­tions have strength­ened their in­sti­tu­tions to boost com­pet­i­tive­ness and eco­nomic sus­tain­abil­ity.

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