VAT in the Gulf Cooperation Council
Edited by Ehtisham Ahmad and Abdulrazak Al Faris
Chapter 2: The Value Added Tax in the Context of the Proposed GCC Common Market
2. The value added tax in the context of the proposed GCC common market 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...
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