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GCC VAT Uncertain

by Lorys Charalambous,, Cyprus

08 April 2010

Countries of the Gulf Cooperation Council (GCC) could have a regional value-added tax (VAT) in place as early as 2012 according to an expert advising the United Arab Emirates (UAE) government, although this target date is looking increasingly unlikely to be achieved with some member states making faster progress than others in preparing for the tax. The GCC comprises Kuwait, Bahrain, Saudi Arabia, Qatar, the UAE and Oman.

Ehtisham Ahmad, an adviser in the Office of the Prime Minister of the UAE, and a senior fellow at the Centre of Economic Research at the University of Bonn, told a tax conference in Dubai that should the GCC governments back the adoption of a harmonized VAT at their October meeting, a 2012 deadline would be achievable, although he admitted it would be "very tight." An implementation date in 2013 would be more feasible, he said, but still difficult to achieve.

While some GCC member states are keener than others to implement a VAT, Ahmad pointed out that those that didn't would be put at a disadvantage because producers in a country not in the VAT union would not be entitled to refunds.

Also, with customs duties set to be phased out under new free trade agreements, Ahmad said that governments could expect to lose significant revenue if VAT is not in place to compensate for the loss. However, he believes that a VAT rate of just 3% will be necessary to cover the loss of revenue experienced by GCC member states as a result of the abolition of customs duties.

Dr. Nasser Al Saidi, Chief Economist of the Dubai International Financial Centre Authority, also told the conference that government finances in GCC countries are highly dependent on revenues from hydrocarbon exports, which makes them vulnerable to the volatility of oil and gas prices.

"Volatility in government revenues affects expenditure plans and investment spending in development projects, which in turn threatens the sustainability of economic growth," he observed. "To address these financial and economic vulnerabilities, the GCC countries need to understand public finance reform and diversify their government revenue sources by considering various sources of taxation, including sales taxes and value added taxation.”

TAGS: United Arab Emirates | tax | value added tax (VAT) | Kuwait | Saudi Arabia | Sharjah | fiscal policy | Bahrain | Qatar | offshore | agreements | Dubai | Oman

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