VAT may delay over year

KUWAIT CITY, Feb 18: “Kuwait, Qatar, Bahrain and Oman will need more time than expected for implementing the GCC agreement to introduce Value Added Tax, even though Saudi Arabia and the United Arab Emirates have already implemented the tax”, says the Deputy Director of Financial Affairs Department at International Monetary Fund (IMF) Abdelhak Senhadji.

According to a report published in Gulf Business News, Senhadji said these countries should be technically ready in approximately 18 months to implement the tax but they may face problems in the political front. Lawmakers in Kuwait have been raising objections to the implementation of the tax system, and demanding the government to ensure the tax does not increase the financial burden of citizens.

The GCC agreement, which was signed in 2016, aims at introducing VAT in all GCC member states in order to help in dealing with the fiscal deficits that emerged since 2015 due to the fall in oil prices from above $100 per barrel in 2014 to less than $30 per barrel in 2016.

IMF expects VAT to generate revenues equivalent to 1.5 to 3 per cent of non-oil GDP and anticipates it to have low impact on inflation and GDP growth. According to Oxford Economics, the five per cent VAT will lift inflation by 2 to 4 per cent in Saudi Arabia and the United Arab Emirates, but will have little impact on the GDP growth, given the counter-measures taken by the authorities.

In December 2017, Saudi Arabia and the UAE introduced excise taxes on energy drinks, fizzy drinks and cigarettes, and they introduced VAT one month later. Bahrain had also introduced excise taxes in December 2017 but the government suspended the introduction of VAT until a joint committee of the Cabinet and the parliament decides on a mechaplot nism to help Bahrainis with limited income to deal with the consequences of implementation of the tax system.

According to a report issued by the ratings agency S&P last month, Qatar was not expected to introduce VAT in this phase as it was faced with the threat of a boycott and the closing of travel, trade and diplomatic ties by the UAE, Saudi Arabia and Bahrain.

Senhadji said regional governments could introduce more taxes to boost revenue, but warned that a corporate tax could see capital leave the region, as studies must be conducted on what other countries are providing in terms of taxes, incentives and other benefits for attracting investments. He indicated about the possibility of introducing income tax but suggested it should be politically feasible and should make economic sense, adding, “Governments in the region could introduce more taxes to help lift revenue, on top of reducing spending”.

Earlier this month, the UAE State Minister for Financial Affairs Obaid Al-Tayer revealed that the country was in the early stages of planning a corporate tax framework, adding that the UAE Government is considering introducing new taxes in addition to the 5 per cent VAT, but has no plans to introduce income tax for the time being. (Source – Gulf Business News and Agencies)

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