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
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