IMF favours Qatar imposing VAT

Qatar should levy VAT on goods, services : IMF

The Peninsula of Doha ( http://thepeninsulaqatar.com/ ) informed on Saturday 4 April 2015 that the International Monetary Fund (IMF) favours Qatar imposing value-added tax (VAT) on goods and services and bringing local and GCC companies within the income tax net to boost its non-energy revenue.  It also suggests that Qatar should contain its expenditure growth by reducing state subsidies and controlling the wages of public servants.

Wages have risen here by 11 percent yearly between 2000 and 2013 on average and the increase in the past five years, especially, has been 20 percent annually, says IMF. Low energy and fuel prices result in large subsidies, direct or implicit, as in other GCC states.  On-budget, or explicit subsidies amounted to two percent of GDP in 2010, or $3bn roughly.

Implicit energy subsidies were estimated at 3.5 percent in 2014.  Water subsidies may also be sizeable, as water consumption rates and technical losses are high in Qatar, as in other GCC states.

Subsidy reforms so far were mainly raising retail petrol and diesel prices in 2011 and 2014, which the IMF says are still way below international market levels (by about 50 percent compared to the US prices, for instance).  On per capita per annum basis, GCC countries consume about 65 percent more water than the world average — 816 cubic meters versus 500 cubic meters. Their dependence is largely on desalinated water which has enormous economic and environmental costs.

However, in Qatar, rationalising water usage and reducing waste could reduce consumption substantially — up to 40 percent.

The IMF, in its Country Report on Qatar, says two main principles should guide tax policymaking here, given its significant surpluses from hydrocarbon revenues.

First, low tax rates and very broad bases generally would not affect investor and consumer behaviour.  “This principle would also be consistent with the economic diversification strategy.”

Second, a corporate income tax (CIT) with broader coverage, which could be achieved by including Qatari and GCC companies, would be seen as more equitable by foreign investors.

About VAT, the IMF said it would serve well as a low-rate broad base tax. VAT is generally viewed as the most stable revenue source, which has the least detrimental impact on investments.

In such a macro-fiscal environment as in Qatar, a low rate, for example, five percent, VAT could be considered, according to the IMF.  Freezing administrative expenses and removing water and electricity subsidies could generate savings of about 4.5 percent of non-hydrocarbon GDP in the medium-term.

Applying CIT of 10 percent to Qatari and GCC companies and introducing a five percent VAT could yield another 3.5 percent of non-hydrocarbon GDP, the IMF report said.

 

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