IMF chief recommends taxes for GCC states

22 February 2016

Lagarde claims over $340bn has been wiped off the value of GCC economies in 2015 alone

Speaking at the Arab Fiscal Forum in Abu Dhabi on 22 February, Christine Lagarde, managing director of the IMF (International Monetary Fund) said the net loss to the economies of the GCC from weakened oil revenues in 2015 was over $340bn.

The loss is equal to 20 per cent of the six states’ combined GDP.

Lagarde also said that “Oil prices have fallen by two-thirds from their most recent peak but supply and demand-side factors suggest they are likely to stay low for an extended period”.

Lagarde, the former French finance minister who last week was appointed to a second term as managing director of the IMF, went on to say that “the size and likely persistence of this external shock means that all oil exporters will have to adjust by reducing spending and increasing revenue”. This, she said, could be done through broad-based taxes such as VAT, and business profit tax.

Traditionally, the Gulf states have not had a need to implement large taxes due to high oil revenues.

She added that revenues equivalent to nearly 2 per cent of GDP could be raised by implementing a VAT, or value-added tax, even at a low, single-digit rate.

“Add to this greater emphasis on corporate income taxes as well as property and excise taxes. And continue to invest in building tax administration capacity that could eventually allow for introduction of personal income taxes.”

The IMF has been assisting Kuwait in preparing for its plans to implement broad-based taxes such as VAT and business profit tax, although no official announcement has yet been made as to when these reforms will be implemented.

Lagarde is also expected to meet several senior political and economic figures this week in her first official visit to the UAE, including Obaid Humaid al-Tayer, Minister of State for Financial Affairs.

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