Media reports in the region said the six states of the Gulf Cooperation Council (GCC) had agreed the key outline for a new VAT system, one of the first direct taxes in the region, at a recent meeting of finance ministers. The new taxes could come into effect as soon as late 2018.
All the region’s governments rely heavily on oil for their revenues with increased expenditure in recent years pushing up the price at which their budgets break even. Meanwhile oil prices have been dropping all year and reached around $40 a barrel this week, the lowest since the financial crisis.
Deal done
The National newspaper quoted Younis Haji Al Khoori, undersecretary of the UAE’s Ministry of Finance, confirming the new taxes would be implemented.
“We have had a meeting only a few days ago, we have agreed now on key issues,” Al Khoori said. “We’ve agreed to exempt some of the foodstuffs [from VAT], approximately 94 items. We’ve also agreed to apply a zero rate on healthcare and the education sector,” he said, stating that social services would also be exempt.
Al Khoori said that governments were targeting a three-year timeline for the introduction of the tax, but this was subject to the signing of a comprehensive agreement.
“We’ve always stated that from the [signing of] the agreement we need 18-24 months. So it all depends on the final agreement date, from that date we need two years for implementation,” he said.
Saudi investment
The International Monetary Fund has been urging the Gulf states to introduce radical tax and spending reforms to tackle the growing budget gap and had in November called on Saudi Arabia and the United Arab Emirates to introduce a value-added tax as soon as possible.
A new report out this week from the McKinsey Global Institute estimated Saudi Arabia would have to invest around $4 trillion across the non-oil sectors of its economy if it wanted to provide jobs for a growing population in an era of low oil prices.
The report said investment on this scale would enable a productivity-led transformation of the economy that enable Saudi Arabia to double its GDP and create as many as six million new Saudi jobs by 2030.
