The Gulf region faces a "pressing need" to introduce taxes in a bid to diversify revenues and strengthen fiscal positions as lower oil prices continue to impact economies, according to financial experts.
While lower oil prices are expected to slow down the GCC economies, it should be seen as an opportunity for countries to restructure and broaden revenue sources, according to speakers at a panel discussion organised by the UAE branch of the Institute of Chartered Accountants in England and Wales (ICAEW).
Panellists agreed that the lower oil price is not a disaster for GCC counties as they have more than $2.5 trillion in reserves and very low percentages of debt. However, for long-term economic sustainability, GCC countries must continue, and accelerate diversifying their revenues.
They agreed that imposing tax is the best solution for GCC countries to broaden revenues as other approaches, such as cutting subsidies or spending, will be difficult to implement at this stage.
Michael Armstrong, ICAEW regional director for the Middle East, Africa and South Asia, said: "There is growing international focus on taxation. Countries are looking for more information on multinational companies who are shifting their profits to countries with lower tax rates.
"Now is therefore a perfect time for GCC countries to start levying taxes. This will be in step with international trends and will also help to diversify revenues."
Speakers said that GCC countries have been discussing a common tax framework for the past 10 years, which is now reaching its final stages. Based on the core principles of the framework, each country will have the choice to implement its own tax legislation and system.
Panellists said that value added tax (VAT) is a viable option - and some form is expected to be introduced in the near future.
They said this could be at a 3-5 percent rate initially, but there are likely to be some exceptions to the levy.
Panellists said that if introduced, VAT could generate up to 4-5 percent of GDP, adding that countries most likely to impose VAT are the UAE and Oman. Other GCC countries are likely to follow, although Qatar is unlikely to introduce taxes at this stage.
Panellists included Jeanine Daou, partner and head of Indirect Taxes at PwC; Gary Dugan, managing director - Global Wealth, CIO and head of Investment Strategy at NBAD; Trevor McFarlane, CEO of Emerging Markets Intelligence and Research; and Ashok Hariharan, partner and regional head of Tax MESA at KPMG.For all the latest GCC news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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