Gulf states prep tax laws ahead of 2018 rollout

The planned tax on consumer goods and services will be the first such levy in the six oil-producing GCC states

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Gulf Arab states are putting the finishing touches on draft laws on value-added taxes (VAT) of up to 5 percent that could be imposed from 2018 to boost revenues hit by falling oil prices, officials said on Thursday.

The tax, drawn up in coordination with the six-nation Gulf Cooperation Council, can be introduced as soon as two GCC members are ready to implement it, they said.

The planned tax on consumer goods and services will be the first such levy in the six oil-producing GCC states that have traditionally been tax-free havens that attracted a large expatriate workforce.

But with a sustained slide in oil prices by about 60 percent since June 2014, they see no alternative to tax reform.

“Each of the six Gulf states will have their own VAT law that will fall under the broad framework of the Gulf Cooperation Council law,” Younis al-Khouri, under-secretary at the United Arab Emirates finance ministry, told Reuters.

“Any two countries that are ready can begin implementation of VAT from 2018,” he said.

Khouri and his fellow finance undersecretaries from Saudi Arabia, Oman and Bahrain - all now in Abu Dhabi for a GCC financial meeting - confirmed to Reuters that VAT laws were in the final stages of preparation in their countries.

The draft legislation was now awaiting final approval from the cabinet or parliament in each country, they said. Kuwait and Qatar are still drawing up their laws, their officials said.

The International Monetary Fund expects the six Gulf states to post average fiscal deficits of around 13 percent in 2016 for an estimated $275 billion shortfall. Introducing VAT across the Gulf could raise up to 2 percent of GDP in revenue, it said.

IMF Managing Director Christine Lagarde urged the GCC countries to introduce a regional VAT as soon as possible when she met their finance ministers in Doha last November.

The UAE expects up to 12 billion dirhams ($3.26 billion) in revenues from a 5 percent VAT in the first year of its implementation, Khouri said, citing a 2014 ministry study.

Gulf states will not charge VAT on some key sectors such as healthcare, education and social services or on 94 food items, he said, adding there was still no agreement on whether to include financial services under VAT.

“There will be no exceptions, all consumers have to pay VAT once it comes into effect and initially there will be a uniform rate for all goods,” he said.

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