WHAT'S BREW­ING IN THE VAT?

Cog­nizant of the need for pri­vate sec­tor growth and not will­ing to rock in­vest­ment prospects, the Gulf coun­tries, for quite some time, have been toy­ing with the idea of in­tro­duc­ing value added tax (VAT), an in­fla­tion-neu­tral fis­cal tool that is seen as ef

Qatar Today - - INSIDE THIS ISSUE - By Ilak Gan

For a long time, the GCC has been toy­ing with the idea of in­tro­duc­ing VAT which may prove a hard pill to swal­low for cit­i­zens.

The dis­cus­sions have now reached fever pitch with the Gulf Co­op­er­a­tion Coun­cil (GCC) coun­tries, which pro­duce about a fifth of the world's oil, re­cently agree­ing on the de­sign frame­work of the con­sump­tion tax in the light of the re­gion wit­ness­ing a pre­cip­i­tous de­cline in rev­enue on weak­ened oil prices that are now at its 13year lows. “The fis­cal and cur­rent ac­count bal­ances in the re­gion are de­te­ri­o­rat­ing sharply, with the fis­cal bal­ance pro­jected by the IMF (In­ter­na­tional Mone­tary Fund) to be in a deficit of 12.7% of GDP in 2015,” said IMF Man­ag­ing Di­rec­tor Christine La­garde in Doha in Novem­ber 2015, ask­ing the Gulf coun­tries to once again em­bark on tax re­forms, in­clud­ing VAT, which, how­ever, does not find fa­vor with the law­mak­ers in the US.

The in­tro­duc­tion of VAT, which has been hang­ing fire for the past decade, ap­pears to be al­most cer­tain in the re­gion, where the oil pool ac­counted for 70-95% of gov­ern­ment rev­enues dur­ing 2011-14. The GCC, which was seen more as a tax haven, has now recog­nised the need for ad­di­tional earn­ings from in­di­rect taxes to off­set the im­pact of lower in­come flows from oil and gas ex­ports, but to what ex­tent it can do so is any­one's guess since it is still not clear on which sec­tors VAT will fall.

In fact, vex­a­tious tax re­forms are not new to the re­gion, with ef­forts to in­tro­duce di­rect or in­di­rect tax­a­tion dat­ing back to the late 1980s. In the early 1990s, GCC min­is­ters re­port­edly stud­ied the fea­si­bil­ity of in­tro­duc­ing VAT and cor­po­rate tax as part of their eco­nomic re­forms but the global re­ces­sion of 2008 and the Arab Spring have rather put the un­palat­able plat­ter into cold stor­age. How­ever, in the present cen­tury, with low oil prices be­com­ing the new eco­nomic or­der and yet

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