All six countries in the Gulf Cooperation Council remain committed to introducing value-added tax, though they will do so at different speeds, a senior International Monetary Fund official said.
“My feeling, through my interaction with the authorities, is that they are still committed and they are still preparing implementation,” Jihad Azour, head of the IMF’s Middle East department, said in an interview.
Seeking to close budget deficits caused by low oil prices, GCC states have agreed to introduce VAT at a 5 per cent rate in 2018 – a big step for governments that have traditionally levied little tax and relied instead on oil revenues.
But the plan poses administrative and technical challenges for authorities, requiring them to draft detailed regulations, register companies paying the tax and create bureaucracies to oversee the system. VAT also threatens to slow economic growth at a time when it is already sluggish.
The GCC states originally intended to introduce VAT simultaneously in January. Saudi Arabia and the UAE continue to say they will do so and have made considerable preparations, but some other countries are much less further along in preparing.
Tax experts in the region believe Kuwait in particular may lag, because of its slow-moving civil service and because its relatively independent parliament may want a say in the process. Officials in Oman have not announced a firm date for VAT, while Bahraini officials have said it is expected by mid-2018.
Since the regional deal on VAT was reached, Saudi Arabia, the UAE and Bahrain have cut diplomatic and transport ties with Qatar, accusing it of supporting terrorism. Qatari officials have not said if this could affect their plan for VAT.
However, Azour said he understood all GCC states remained committed to the tax, including Qatar and Kuwait. Countries with larger financial reserves relative to their deficits may be able to introduce the tax more slowly, he added.
“The speed of implementation of it will vary — some will come in 2018, some may need more time.”
Because the GCC’s two biggest economies will introduce VAT at roughly the same time, trade flows in the region won’t be distorted if the other countries implement the tax at different times, Azour said.