‘TAX’ING! Gulf states mull introducing VAT, say reports

Manama

As reports about the dissents among the Gulf Cooperation Council (GCC) countries on the introduction of value added tax (VAT) emerged, financial consulting firm Deloitte urged GCC nations to introduce VAT yesterday.

On Tuesday, Reuters had quoted the Ministry of Finance of the United Arab Emirates that “UAE is studying a proposal to impose VAT but its introduction has been delayed by a lack of agreement among neighbouring countries on rates and exemptions.”

“If the GCC countries reach a final agreement on issues related to the application of VAT, it will be announced directly,” the Ministry said. But it did not elaborate on when agreement might be reached.

The six oil exporting states of the GCC have been studying the introduction of VAT for years. The plunge of oil prices since last year has slashed governments’ income, making it more urgent for them to find new revenue.

However, Reuters reported that discussions had stalled as country leaders had been unable to agree on the terms and details of such a tax, and because it’s politically sensitive.

Nauman Ahmed, partner and regional tax leader at Deloitte Middle East, said: “Faced with a need to raise additional government revenues, implementing a VAT would be a rational response by government. That is not to say that the implementation of corporate or personal income tax can be ruled out; rather it is a reflection on the fact that a VAT seems to “tick more of the boxes” than the others.”

He added: “Compared to a VAT, a corporate income tax is more likely to act as a disincentive to businesses considering investment in the region and hence more negatively impact GDP growth. A personal income tax presents an obvious challenge to the ‘tax-free’ branding that has served the region so well in the past.”

Analysts believe that to limit damage to the competitiveness of economies, the tax would probably have to be introduced regionally.