Fiscal Reforms in the Middle East

Fiscal Reforms in the Middle East

VAT in the Gulf Cooperation Council

Edited by Ehtisham Ahmad and Abdulrazak Al Faris

Although oil windfalls have opened a window of opportunity for the Gulf States, at the same time they have created numerous problems. In particular, the uncertainty associated with periods of boom and bust in the oil market has made the formulation and implementation of sound fiscal policies a formidable task. This insightful book focuses on the role of fiscal policy in common markets, especially in the context of the supranational constructs in the Gulf Cooperation Council, comprising Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates and Oman. It draws on the experience of the EU and the importance of VAT, and reflects on the other main common market in Central America.

Introduction

Edited by Ehtisham Ahmad and Abdulrazak Al Faris

Subjects: economics and finance, public finance, public sector economics

Extract

Ehtisham Ahmad and Abdulrazak Al Faris The issue of fiscal reforms, and particularly the design of non-oil sources of taxation, in the Gulf Cooperation Council (GCC) countries has to be seen in the context of the plentiful natural resources in the region, the need for revenues in some member states, and for completion of the panoply of macroeconomic instruments in a modern economy. Most of the countries have non-oil taxes—these are largely based on customs tariffs, and corporate taxation of foreign companies. These forms of taxation have been inimical to foreign investment. In recent years, there has been a reduction and rationalization of rates in most (corporate rates have been reduced from more than 50 percent to 20 or 25 percent in most countries), and the move towards a GCC common market was preceded by rationalization of customs duties and the establishment of a common external tariff of 5 percent. Both reforms have led to a loss in non-oil revenues. Indeed, the impetus to search for alternatives to customs duties arises out of a further loss in non-oil revenues due to the free trade agreements between the GCC and its major trading blocs—some of which have already been agreed, others that are in the process of finalization. The alternatives, including the VAT and a system of excises, were proposed following a series of technical cooperation discussions and missions involving Dubai (on behalf of the GCC Secretariat), the Secretariat, and IMF technical teams—the recommendations are summarized in Ahmad...