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.

Chapter 2: The Value Added Tax in the Context of the Proposed GCC Common Market

Vito Tanzi

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

Extract

Vito Tanzi A brief description of the origin of the value added tax (VAT) and the circumstances that contributed to its adoption will help us understand the context in which the tax came to be used by the European countries as they were creating a common market. The European situation at that time bore similarity with the one that prevails today among the countries of the Gulf. After discussing the origin and the introduction of the VAT, I will focus briefly on the background that characterizes the economies of the countries of the Gulf Cooperation Council and compare it with that of the European countries at the time when the VAT was introduced in Europe. I will finally discuss briefly the role that the VAT could play in the countries of the Gulf Cooperation Council. A THE ORIGIN OF THE VAT The value added tax is a relatively recent addition to the tax instruments that countries have available to finance the activities of their governments. It is a European invention and an important “technological” development in tax systems. Although there is some dispute over its origin, it is commonly assumed that its “inventor” was a Frenchman, Maurice Lauré, who held the position of Director of the French Tax Administration, the Direction Générale des Impôts. In 1953, Lauré published the first book on the VAT.1 By 1955, Carl S. Shoup, then perhaps the leading public finance scholar in the world, could write that: “The latest innovation is the...

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