Gulf VAT plans face setback

Disagreement between GCC member states over monetary union could delay plans for the introduction of value added tax in the region, according to an IMF official.

Mohsin S Khan, IMF director for the Middle East and central Asia told Gulf News yesterday “Any delay in achieving the GCC currency union will have an impact on the introduction of VAT across the region.

Huge fiscal surpluses generated by economic boom also meant the “introduction of tax will be a politically sensitive subject” he told the newspaper.

The six GCC member states said last week they would delay the decision on when to aim for monetary until next year, and not at a summit in Qatar in December.

All six states have said the 2010 deadline would be difficult to meet. UAE Central Bank Governor Sultan Nasser Al Suweidi told .Commerce magazine in October the deadline was likely to be delayed by more than five years.

However GCC secretary general Abdul Rhaman Al Attiyah told a news conference last Wednesday there would be no delay in meeting the target of 2010.

The IMF said last month it backed UAE plans for the introduction of VAT. A report entitled Article IV Consultation with the UAE, said the IMF "welcomed the preparations to introduce a Value Added Tax system at the federal level."

Khan said in May VAT made "economic sense" for Gulf countries that are diversifying into sectors including tourism, hospitality and financial services.

"Taxation is certainly a politically sensitive subject in the Gulf. However, a sales tax is unlikely to attract as much opposition as an income tax," he said at the time.

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