GCC edges closer to finalising VAT laws

17 January 2016

The planned tax can be introduced as soon as any two of the GCC members are ready to implement it

The six-member economic bloc of Gulf countries is getting closer to finalising the draft laws on value-added taxes (VAT) of up to 5 per cent that could be introduced from 2018.

The planned tax on consumer goods and services can be introduced as soon as any two of the GCC members are ready to implement it, according to news agency Reuters, which cited finance officials from the GCC countries.

It will be the first such tax in the Gulf states, which are grappling with an economic slowdown on the back of the falling oil revenues – their main source of income. Oil prices have lost about three quarters of their values since mid-2014, down to new 12-year lows of around $30 per barrel. Saudi Arabia, the biggest producer in Opec’s basket, has resorted to selling local currency bonds and tapped into foreign to fund the budget deficit. The UAE has been withdrawing funds from the local banks to foot its bills.

Implementation of VAT is part of the GCC governments’ efforts to diversify their revenues streams. Other measures include reducing fuel and power and water subsidies to lessen burden on state coffers.

“Each of the six Gulf states will have their own VAT law that will fall under the broad framework of the Gulf Cooperation Council law,” Younis al-Khouri, under-secretary at the UAE finance ministry was quoted as saying by Reuters. “Any two countries that are ready can begin implementation of VAT from 2018.”

Khouri and finance undersecretaries from Saudi Arabia, Oman and Bahrain were in Abu Dhabi for a GCC financial meeting said that VAT laws were in the final stages of preparation in their countries and awaiting final approval from the cabinet or parliament in respective countries. Kuwait and Qatar are still drawing up their laws, their officials said.

The International Monetary Fund expects the six Gulf states to post average fiscal deficits of around 13 percent in 2016 for an estimated $275bn shortfall. Introducing VAT across the Gulf could raise up to 2 per cent of GDP in revenue, it said.

The UAE expects up to AED12bn ($3.26bn) in revenues from a 5 per cent VAT in the first year of its implementation, Khouri said, citing a 2014 ministry study.

Gulf states will not charge VAT on some key sectors such as healthcare, education and social services or on 94 food items, he said, adding there was still no agreement on whether to include financial services under VAT.

“There will be no exceptions, all consumers have to pay VAT once it comes into effect and initially there will be a uniform rate for all goods,” he was quoted as saying by Reuters.

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