The six countries making up the GCC will start taxing people for the first time, says Samuel Osborn in The Independant of Thursday 10 December 2015. “The Gulf Cooperation Council (GCC ) has agreed to introduce VAT following costly military campaigns and a drop in global oil prices.
The GCC – a loose federation of Saudi Arabia, Kuwait, Bahrain, Oman, Qatar and the United Arab Emirates – has agreed to introduce VAT following costly military campaigns and a drop in global oil prices.
Saudi Arabia has withdrawn tens of billions of dollars from global investment funds in an attempt to reduce its budget deficit, The Times reports. Despite this, it has pursued an aggressive foreign policy, supporting anti-government troops in Syria and spearheading an eight-month military campaign against Iran-backed rebels in Yemen. Oil prices have dropped near $40 a barrel this week, the lowest since the financial crisis. Taxation is considered an alternative source of income for Gulf states hoping to move their economies and populations away from a dependence on oil and gas.
The council announced a target to introduce VAT over the next three years. Healthcare, education, social services and 94 food items will be excluded. To limit smuggling and competitiveness, the countries aim to introduce the tax at the same time.”
In an August 2015 report, the International Monetary Fund (IMF) said the UAE could generate extra revenues worth as much as 4.1% of the non-hydrocarbon domestic product (GDP) by introducing a 15% ad valorem tax on passenger vehicles and by also broadening the coverage of its corporate income tax scheme, aside from collecting a 5% VAT. The council announced a target to introduce VAT over the next three years and that healthcare, education, social services and basic food stuff will be excluded.
In fact, the IMF recommended not just VAT, but also tax on cars, and on all companies without any exceptions.
Tax reforms could help a country raise as much as 4.1% of non-hydrocarbon GDP as reported by GulfNews. Taxation goes beyond being considered an alternative source of income for the Gulf states but another way to drive their economies and populations away from the almost addictive dependency on oil and gas commerce.
A year earlier, the GCC countries were already advised by experts to impose taxes as a must, justifying such a decision by the fact that low oil prices should be an ‘opportunity’ to diversify their economies as according to these experts, all GCC oil export revenues are expected to be $275 billion lower in 2015 than 2014.