Fiscal Reforms in the Middle East
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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.
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Chapter 6: The VAT in Common Markets: Lessons from Central America

Carlos Silvani

Extract

6. The VAT in common markets: lessons from Central America Carlos Silvani Regional integration advances through the elimination of tax barriers and the formation of common markets where a common external tariff is applied. The American continent has not been an exception. ALALC (Latin American Free Trade Association)1 was created in 1960 and replaced in 1980 by ALADI (Latin American Association for Integration),2 eventually resulting in MERCOSUR (Southern Cone Common Market)3 and CAN (Andean Community of Nations).4 In 1989, a free trade agreement was signed between Canada and the US, which Mexico joined in 1991, forming the North American Free Trade Agreement (NAFTA). In the Central American (CA) countries, the first step towards integration was the General Economic Integration Treaty5 in Managua in 1960. This established the bases for the Central American Common Market.6 Free trade process continued, particularly during the 1980s, with the reduction of export taxes. Today, there are only import taxes.7 The Central American Common Market started with the Guatemalan Protocol8 signed in 1993. In 2000, Guatemala and El Salvador signed an agreement, which Nicaragua, Honduras, and Costa Rica joined later. In 2002, these five countries approved the General Framework for Central American Customs Union Negotiation,9 which currently regulates integration. The region is shown in Figure 6.1 and its macroeconomic characteristics are described in Table 6.1. As part of the integration process in June 2006, the Ministers of Finance Council10 signed an agreement on harmonization of domestic taxes.11 In addition to tax...

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