IMF says income tax may become “necessary” for GCC states

The Gulf Cooperation Council countries may eventually be forced to implement income and other taxes to balance their budgets in the future, according to an IMF official.

Speaking to The National, the IMF’s deputy director of fiscal affairs department Abdelhak Senhadji said the organisation had advised Gulf governments to look at other forms of taxation including on immovable assets like real estate as they prepare to introduce VAT in January.

“All of this [introduction of personal income tax] has to be feasible economically but also politically,” he was quoted as saying.

“Eventually I think the introduction of personal income tax may be necessary depending on development in the oil markets and also in terms of reforms and what type of yields they provide and how the overall budget looks like.”

Real estate taxes could be worth 1-2 per cent of GDP for countries in the region, according to the IMF.

The official also said not all of the GCC countries are likely to be ready to implement the 5 per cent regional value added tax rate in the first quarter of next year.

Senhadji indicated th organisation was “skeptical” about whether the plan could be achieved on time due to a lack of preparation in some countries.

“Countries should not necessarily rely on the laggards to delay the reforms that are necessary for them to restore fiscal sustainability,” he said.

So far, only the UAE and Saudi Arabia have implemented the necessary laws to implement VAT on January 1. They are also the only countries within the group to introduce an agreed selective tax on soft drinks, energy drinks and tobacco products.

Bahrain, Kuwait, Oman and Qatar have yet to announce when they will implement the taxes, with the latter’s participation deemed less certain given the current boycott it faces within the group.

Read: Kuwait studies VAT exemptions to minimise impact on citizens

In August, the director general of the UAE Federal Tax Authority indicated the other Gulf countries could take until the end of 2018 to implement VAT.

Read: Other GCC states may introduce VAT after UAE and Saudi

Professional services firm EY estimates the tax will produce revenues of more than $25bn per annum in the GCC.

Read: VAT to generate $25bn in annual revenues for GCC countries