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 7: VAT, Revenue Sharing, and Intergovernmental Transfer Design: The Australian Experience

Bob Searle

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


Bob Searle In Australia, the introduction of a VAT (the Goods and Services Tax) was a difficult negotiation between the central and state governments as it was designed to rationalize the Federation’s tax system and involved the abolition of a number of state taxes. Under Section 90 of the Constitution, the “excise clause” effectively prohibits the states from levying taxes on the sale of goods, but they could probably still tax services.1 Thus, state VATs (see papers by Bird and Boadway, Chapters 3 and 4, this volume) were not an option under the Constitution but the intention of governments was to ensure that a centrally administered VAT would provide the states with an ongoing source of revenue. This parallels the discussion concerning the implementation of the VAT in the UAE (see Ahmad, Chapter 1, this volume) although not the GCC. After considerable consultation with the states, agreement was reached for the introduction of a VAT from 1 July 2000, the phased abolition of several state taxes over a five-year period, and the VAT revenue being returned to the states as untied grants. This political economy compromise was facilitated by the existence of an equalization system of untied transfers, whereby the federal government redistributed funds to the states out of general revenues: the amounts being decided as part of annual budget preparations. With the introduction of the VAT, the compromise was that VAT revenues would be totally redistributed to the states under the equalization system. This paper focuses on describing the...

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