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Mon 22 Feb 2016 01:59 PM

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IMF chief says GCC's VAT plan could add 2% to GDP

Christine Lagarde says value-added tax proposal, even at a low single-digit rate, could raise significant revenues

IMF chief says GCC's VAT plan could add 2% to GDP

The International Monetary Fund has said that introducing a value-added tax in the Gulf region, even at a low single-digit rate, could raise revenues equivalent to as much as 2 percent of gross domestic product.

"Add to this greater emphasis on corporate income taxes as well as property and excise taxes. And continue to invest in building tax administration capacity that could eventually allow for introduction of personal income taxes," said IMF Managing Director Christine Lagarde on Monday.

She added that she is confident that Gulf Cooperation Council economies can make the large fiscal adjustments they need to cope with a period of low oil prices.

She said oil exporters would have to reduce state spending and increase government revenues, but that they had shown the ability to adjust in the past and could do so again.

"Oil prices have fallen by two-thirds from their most recent peak but supply and demand-side factors suggest they are likely to stay low for an extended period," Lagarde told a conference of Arab economic officials.

She estimated that in the Middle East and North Africa as a whole, oil exporters lost more than $340 billion of revenues last year because of low crude prices, equivalent to 20 percent of their combined gross domestic product.

"The size and likely persistence of this external shock means that all oil exporters will have to adjust by reducing spending and increasing revenue," Lagarde said.

She added, "Most GCC countries are now in a position where they can pace their adjustment over several years and thus limit the impact on growth." She did not specify which of the six GCC economies were not in that position.

As oil prices have plunged, the IMF has played an increasing role advising GCC governments on reforms to shore up their finances, and its recommendations have provided some governments with political cover to make difficult decisions that could lower living standards of their citizens.

Lagarde noted that the IMF had helped Kuwait to study the design of broad-based taxes such as VAT and a business profit tax. The Kuwait government has said it is preparing for such reforms but has not made a firm commitment to a specific plan.

 

Thinker 3 years ago

If they are going to introduce these extra taxes (most importantly personal income tax) then the UAE needs to start allowing expats the gain citizenship. Taxes are paid to provide for ALL members of society not just select few. So expats need to be able to have access to free education, discount housing, discount dewa etc if they are going to be paying taxes. It's that simple. No one is going to pay tax and not receive anything in return.

One Guy 3 years ago

whatever is raised by this means and added to GDP will be lost 5 fold from people leaving en masse which will reduce GDP commensurately.....

moving out 3 years ago

this might be the final straw to break the camel's back, there are so many people making the first steps to moving away from the UAE, especially those like myself who have been here 10-20 years. It is now more economically rewarding to live overseas and commute here for a week or two a month than reside here full time... adding extra taxation (fees) will only worsen the problem, make the annual accounting more complex (and expensive) ... and all the teething troubles of the collection of this tax..

I'm already looking to move the centre of my business to Singapore, its just so much simpler to run a business there compared to the UAE these days..

Great care needs to be taken to try to avoid losing many businesses that are established here

PPM 3 years ago

Why do you say that?
You - and every other resident - pays the 5% import duty on virtually everything you buy here and yet you are not demanding anything in return.
Why should one more tax suddenly change the equation for you or were you just unaware of the current arrangement?

steve 3 years ago

The region might need tax revenue but the region is not ready to handle the instability of collecting taxes without understanding why taxes are paid by citizens.

chris 3 years ago

What percentage of the GCC population is made up by foreign workers and expats?

What percentage of that number is here mainly for the income and savings potential?

If this is no longer the main strategy in the GCC that is great, but more locals will need to start doing harder and less glamorous work because VAT will drive non-citizens and non-voters to greener pastures.

Harry Stylish 3 years ago

By allowing Agencies , we are effectively paying a VAT due to lack of a parallel market and stifling true competition. Hence VAT should either be imposed only on "Agencies" or remove the exclusivity of Agencies -open the markets to true rates for goods and services and charge VAT.
The latter will actually makes most goods cheaper even with up to a 15% VAT

Pankaj Shah 3 years ago

Personal income tax is a bad bad idea. People will just run away.
The proposed VAT will already act as a kind of personal tax.

A corporate income tax is the best bet as there are still lots of big businesses making millions and not paying any tax. It will also help curb money laundering !!

Okay 3 years ago

Methinks @ppm you have never lived outside of the UAE. To clarify what I think the OP is trying to say. Personal income tax is paid to provide services for the entire population and its social responsibilities and needs. There is no class or race distinctions or passport distinctions for that matter. Personal income tax pays for education for all, health care for all, unemployment for all, subsidized housing for all, pension for all and a plethora of other services for all people. If expats have to start paying income tax then they need to have access to all these things. There needs to be equality. No one in their right mind would pay income tax for no benefits.

Richard 3 years ago

IMF Managing Director Christine Lagarde. So the French basket case economy is the new model for the UAE?