Single GCC tax may shackle Doha

16 May 2008
There is belief in the potential for cross-border economic initiatives. Foreign direct investment in the GCC reached record levels last year.

The GCC’s ambitious plan to create a single tax regime across its six member countries is likely to take years to receive political approval and implement.

The group has already prioritised a residency cap, limiting the time spent in the region by unskilled workers to six years, and a UAE minimum wage for 2008.

But the fact that a single tax regime is even being considered given the stuttering progress of currency union is a strong indicator that the council continues to believe in the potential for cross-border economic initiatives.

Analysts agree that the basic proposal is sound. While foreign direct investment in the GCC reached record levels last year, at about $35bn, much of that was channelled directly into Dubai, Abu Dhabi and Doha. Other countries would welcome the greater investment that could come under the proposed tax regime.

There is some intrigue to Qatar’s involvement, however. Doha is making its own plan to cut its tax rate to 10 per cent, raising the spectre of the state taking unilateral action and seizing the initiative over the GCC.

When Kuwait broke ranks from the GCC and started tracking a currency basket, which included the dollar, in May 2007, the move threw the future of a GCC-wide single currency into doubt.

Qatar, ever the diplomat, is unlikely to strike out on its own tax path for the sake of a competitive edge. But questions remain over how far developed its own plan for tax reform is, and the timing of any move by its cabinet will be carefully watched across the region.

Qatar, locked in a battle with neighbours Bahrain and the UAE for luring international investment and expertise to its own shores, prides itself on staying one step ahead of the competition.

Now it has raised the idea of a GCC-wide tax plan, it may prove tricky to extricate itself from a GCC-wide commitment and forge ahead with its own domestic policy.

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