• GCC has adopted draft agreement on region-wide value added tax
  • Each member country to issue separate law that includes principles of the agreement
  • GCC countries looking to expand their revenue bases as oil revenues fall

GCC officials have adopted a draft agreement to implement a value-added tax (VAT), according to Kuwait’s Finance Minister Anas al-Saleh, the Kuwait News Agency has reported.

Each GCC member will issue a separate VAT law that includes the principles of the draft agreement.

No timetable was given for its implementation.

GCC governments are looking at ways to expand their revenue bases as oil and gas prices continue at significantly lower levels. The states have committed to high levels of infrastructure and welfare spending.

GCC countries have no personal income tax and low levels of corporate tax. This means government revenue is heavily dependent on hydrocarbons exports.

Kuwait’s government revenue depends more than 90 per cent on oil revenues, while Oman gets 79 per cent, according to their budgets. The UAE is the most diversified, with only 30 per cent of state revenues coming from oil and gas exports, according to its deputy prime minister.

VAT would have to be implemented across the GCC to avoid widespread smuggling of taxed goods.

However, concerns have been raised over sudden increases in living costs.

“Sales tax rises in other countries have had an impact on the wider economy,” says Luke Thompson, managing director for economics at UK-based analysts Markit. “There is a risk that a high sales tax would affect consumer spending and have a knock-on effect on the wider business economy.”

In 2008-10, when oil prices last fell, the introduction of a GCC-wide value-added tax (VAT) was discussed, and most governments went on to draft their own VAT laws. The plans were dropped following the 2011 Arab unrest, as authorities shied away from implementing unpopular reforms that would raise the cost of living and doing business in the region.

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