The UAE and Saudi Arabia experiences will be key to how it plays out
Slowly yet steadily taxes are becoming a reality in the Gulf countries and a stark departure from the past culture. In reality, any absence of taxation is abnormal.
Concerned international agencies like the IMF have long pressed GCC authorities to consider introducing various forms of taxes to strengthen — and diversify — treasury revenue sources. The argument used by some governments focused on the uniqueness of the GCC situation where locals expect governments to offer all such services for free.
However, the plunge in oil prices and with no end in sight consolidated the move towards the adoption of different types of taxes. For the moment, Gulf officials keep contemplating fresh methods for imposing taxes while seeking ways to bolster treasury revenues.
Saudi Arabia and the UAE, the two largest economies in the Gulf, revealed plans for introducing value-added tax at the start of 2018. It is probable that some countries adopt a wait and watch policy following the implementation in the UAE and Saudi Arabia. The VAT could be anywhere between 3 and 5 per cent, at least in the initial stage.
Moreover, the UAE plans to implement an excise tax on what are construed unhealthy products starting October. The new tax shall be implemented on a select list of goods consumed inside the UAE, including within free zones, but not bought by transiting passengers. While details remain to be worked out, preliminary suggestions point to the imposition of 100 per cent tax on tobacco as well as energy drinks like Red Bull, as well as 50 per cent on fizzy drinks.
Implementation of excise tax has multiple objectives. The tax is designed to discourage consumption of “sin” products like tobacco by making them more expensive to consume. What’s more, excise tax is expected to generate a sizeable $1.91 billion in annual revenues to the budget, something useful in the ongoing environment of low oil prices.
In the aviation sector, Dubai and Doha airports decided to apply a new special exit tax to cover use of airport facilities on top of the existing taxes, fees and surcharges to generate additional governmental revenues. In 2016, both Dubai International Airport and Hamad International Airport in Doha introduced fees of nearly $10 per passenger for use of airport facilities like the internet, washing rooms and seating areas plus intra-trains between terminals.
Bahrain International Airport increased departure taxes by 40 per cent to $18.5 per passenger, effective from March. Declared purpose of such moves focused on generating a steady flow of revenues to help with maintaining and expanding airport facilities and services. Another argument focused on the presence of such a tax elsewhere in the world, and thus not being innovative.
Turning to other GCC economies, the Kuwaiti cabinet in 2016 approved a plan to impose a 10 per cent tax on profits of companies operating in the country. But the authorities had not fixed a specific date for implementation. The original plan called for a broad-based corporate tax, though later modified.
Oman decided to increase corporate tax from 12 to 15 per cent, effective late February. Nevertheless, officials decided to extend withholding tax on dividends, interest and payments for services.
Undoubtedly, imposition of some sort of taxation is a fact of life all over the world. Make no mistake, existing and intended taxes in the GCC are below prevailing rates in Europe, notably the Scandinavian countries.
The writer is a Member of Parliament in Bahrain.
Source: Gulfnews UAE