VAT in the Gulf Cooperation Council
Edited by Ehtisham Ahmad and Abdulrazak Al Faris
Chapter 7: VAT, Revenue Sharing, and Intergovernmental Transfer Design: The Australian Experience
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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