GCC pushes on towards introduction of regional VAT

Low crude prices may add weight to calls for tax.

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GCC officials agreed at the weekend to keep working towards the introduction of a value-added tax (VAT) around the region, in a sign that low oil prices may be strengthening support for the idea.

A meeting in Doha of the GCC’s Financial and Economic Cooperation Committee adopted a draft agreement on VAT that will be endorsed by member governments, the Kuwaiti state news agency Kuna quoted Kuwait’s minister of finance, Anas Al Saleh, as saying on Saturday.

Introducing VAT, also known as sales tax, would be a big economic reform for the region, which has maintained high social spending and nearly no taxation since the global financial crisis.

Because there is considerable travel within the GCC, officials believe VAT would have to be imposed simultaneously in all of its six countries to avoid smuggling of untaxed goods across borders that could cost governments billions of dollars.

The GCC economies and budgets remain heavily dependent on oil revenue, and many economists have been urging GCC governments to introduce new taxes to diversify their revenue bases.

The GCC has been discussing the idea of introducing VAT for about a decade without acting on it. But cheap oil has opened up state budget deficits in recent months, and the weekend’s Doha agreement may indicate that the idea could now be taken more seriously.

However, Mr Al Saleh did not give any time frame for VAT to be introduced or specify the likely tax rate, which suggested that key details have still not been decided.

He said each GCC country would issue its own VAT law based on common principles of the Doha agreement.

GCC officials also agreed to ask the IMF, a vocal proponent of more taxes in the Gulf, to prepare studies of the effect of low oil prices on GCC member states, especially on their financial stability, domestic energy prices and tax policies, added Mr Al Saleh.

He said ministers of justice were discussing the idea of establishing a joint GCC judicial body handling economic issues.


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