Font Size

- Aa +

Fri 11 Dec 2015 03:22 AM

Font Size

- Aa +

VAT in the Gulf: A question of when not if, says Deloitte

Advisory firm says recent agreements reached by members of the GCC are 'an important step forward'

VAT in the Gulf: A question of when not if, says Deloitte

Agreements reached recently by members of the GCC on certain design aspects of value added tax (VAT) systems are "an important step forward" in the region's fiscal reform debate, accoridng to Deloitte.

The advisory firm said the big question now is "when" not "if" VAT will be implemented in the Gulf, and, importantly, by which country (or countries) first.

According to Deloitte, VAT is considered "efficient, cheaper to operate, less open to fraud, and less likely to distort investment decisions by businesses" than any other form of direct tax.

The multi-lateral agreements which were revealed earlier this week would appear to be those which are designed, primarily, to ensure that certain social-economic distortions often associated with VAT are minimised, Deloitte added.

"In particular, removing VAT from food products (94 items have been identified), healthcare and education would appear to reflect a broad desire to ensure that these vital household expenditure items are not directly impacted by a VAT in the GCC," Deloitte said in a statement.

Stuart Halstead, indirect tax leader at Deloitte Middle East, added: "That negotiations around financial services are ongoing is, to some extent, to be expected. It is a challenging area and there are numerous issues at play here.

"The first is that financial services are notoriously difficult to apply VAT to from a technical perspective; precisely identifying the value added of a financial service can be difficult for institutions themselves, let alone tax authorities charged with checking that the institutions got their sums right."

He said that policy makers are generally concerned about unnecessarily taxing investment and savings products.

On Monday, it was reported that Gulf states have committed to an 18-24 month decision-to-implementation timescale, a move that should be welcomed by the business community, said Nauman Ahmed, partner and regional tax leader at Deloitte Middle East.

"Providing businesses with adequate time to prepare is an important factor that contributes towards the successful implementation of a tax, particularly given the vital role that businesses play when collecting and remitting VAT to the authorities," added Ahmed.

Introducing VAT would be a major economic reform in the Gulf Cooperation Council states, which have minimal tax systems and no tax on income, although some levy fees such as road tolls.

The plunge of oil prices since last year has slashed government incomes, making it more urgent for them to find new revenue. The UAE - one of the six GCC countries, which also include Bahrain, Kuwait, Oman, Qatar and Saudi Arabia - is expected this year to post its first budget deficit since 2009.