Bring in taxes, IMF tells GCC countries
VAT, corporate income and property taxes to boost revenue: Fund
abu dhabi — The International Monetary Fund (IMF) on Monday said Gulf Cooperation Council (GCC) nations should introduce value-added tax to generate more revenues in the wake of volatile international oil market.
Christine Lagarde, managing director of IMF, said the GCC region should consider corporate income tax, property and excise taxes to diversify their revenue sources.
Addressing the two-day Arab Fis-
Gulf economies need to strengthen their fiscal frameworks and reengineer their tax systems
Christine Lagarde, IMF chief
cal Forum, she said GCC economies need to strengthen their fiscal frameworks and re-engineer tax systems by reducing heavy reliance on oil revenues and, instead, boosting sources of non-hydrocarbon revenues.
“The oil-producing region, which lost $340 billion, or 20 per cent of its gross domestic product owing to the oil price plunge in 2015, should continue to invest in building tax administration capacity that could eventually allow for the introduction of personal income tax,” Lagarde said at the forum being organised by the Arab Monetary Fund.
She was of the view that introducing a value-added tax, even at a low single-digit rate, may raise revenues equivalent to as much as two per cent of gross domestic product.
abu dhabi — The International Monetary Fund (IMF) has suggested to the oil-rich GCC nations to introduce value added tax (VAT).
Speaking at the two-day Arab Fiscal Forum, being organised by the Arab Monetary Fund, here in the capital, Christine Lagarde, managing director of IMF, said the GCC region can also raise revenues from corporate income tax, property and excise taxes.
The oil-producing region, which lost $340 billion or 20 per cent of its gross domestic product (GDP) owing to the oil price plunge in 2015, should continue to invest in building tax administration capacity that could eventually allow for the introduction of personal income tax, she suggested.
“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 means that all oil exporters will have to adjust by reducing spending and increasing revenue,” the IMF managing director said.
She said fiscal adjustment needs vary from country to country. For instance, due to their prudent po- lices, most members of the Gulf Cooperation Council (GCC) 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,“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 tax systems by re- ducing heavy reliance on oil revenues and, instead, boosting sources of non-hydrocarbon revenues.
This would help bolster growth and job creation and maintain debt sustainability and strengthen resilience, she told Arab finance ministers. It would also provide an opportunity to design tax systems that emphasise fairness and efficiency.
She asked the GCC bloc to start 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 two per cent 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 IMF’s top executive said.
Proponents of reform argue that this would allow the country to better manage fiscal risks associated with volatile oil prices, she said.
Obaid bin Humaid Al Tayer, UAE Minister of State for Finance Af- fairs, said GCC nations have strengthened their institutions to boost competitiveness and economic sustainability. The region has embarked on an economic reforms process, he said, referring to the withdrawal of state subsidies on petroleum products.