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 11: Institutions, Political Economy, and Timing of a VAT: Options for Dubai and the UAE

Ehtisham Ahmad

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


Ehtisham Ahmad* The Dubai government, and on its behalf Dubai customs, have been at the forefront of the investigation of the VAT as an option for the GCC countries. Preparations for implementing the VAT are also underway with the help of a project team that is located in Dubai customs. As the UAE is a federal country, questions naturally arise as to the level at which VAT policy might be set, as well as the appropriate location of the administration of the VAT, and more importantly how the monies might be shared between the members of the federation. If a decentralized administration model is chosen and the VAT becomes the responsibility of each of the seven Emirates the bulk of the revenues remain in the Emirates in which these are generated, and the issue becomes one of how to manage interEmirate transactions and refunds. More importantly, new administrations will have to be established in each of the Emirates. If a centralized administration model is chosen, with a new federal revenue agency, the main issue boils down to how the revenues might be shared between the federal government and the Emirates, as well as the distribution across the individual Emirates. The political economy of the VAT reforms should not be underestimated. It is clearly in the interest of the wealthier “trading” Emirates, including Abu Dhabi and Dubai, to replace customs duties phased out by the free trade agreement with the VAT. However, it will be important to share the gains with...

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