Gulf states have agreed on key issues for implementing value-added tax in the region, an official from the United Arab Emirates finance ministry said on Monday, moving the six nations closer to introducing direct taxation for the first time. The agreement was reached at a meeting of representatives from Gulf ministries a few days ago, Younis Haji Al Khouri, undersecretary at the UAE ministry of finance, told reporters on the sidelines of a media event.
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.
Khouri said the target for introducing the tax was three years, and that it would take 18 to 24 months to implement once a final agreement has been reached.
"We agreed on key issues to apply zero tax on healthcare, education, social services sectors and exempt 94 food items," Khouri said. In a couple of areas - including financial services - agreement was still lacking, he said.
To limit smuggling and damage to competitiveness, analysts say, the Gulf countries should introduce VAT regionally rather than individually, at different times. The six states have been discussing the tax for years, but political and economic issues have delayed the project.
VAT cannot be implemented unilaterally but has to be part of a Gulf-wide decision, Khouri told Reuters in August, adding that if all GCC states agree on a deadline, then some could implement ahead of the others. No indication of the rate at which VAT will be levied has been given by governments, although the International Monetary Fund has suggested the UAE consider imposing VAT at a 5 percent rate.
Source: Arabian Business