IMF says Bahrain, Kuwait, Oman, Qatar will need more than a year to introduce VAT

Bahrain, Kuwait, Oman and Qatar may need a year and a half to introduce an agreed 5 per cent value added tax rate, according to an International Monetary Fund official.

The deputy director of the IMF’s fiscal affairs department, Abdelhak Senhadji, told The National that the countries may require more time than initially expected following a Gulf Cooperation Council deal to implement the tax in 2016.

So far only Saudi Arabia and the UAE have implemented the tax, which applies to most goods and services, with Oman stating it will do so in 2019.

Read: Oman postpones VAT introduction until 2019

The group has originally said countries would have until the end of 2018 for implementation but legislative and administrative steps have been slow in some cases.

“Technically they should be able to be ready in a year and a half,” Senhadji was quoted as saying. “Of course there is the issue of political will to introduce it.”

In Bahrain the government has suspended the tax’s introduction until a joint committee of the cabinet and the parliament agrees on a mechanism to help lower-income Bahrainis weather the effects.

Kuwait has seen resistance from lawmakers who also want the government to ensure the tax does not burden citizens.

Read: Kuwait MPs say they will oppose VAT bill

Ratings agency S&P said in a report last month that Qatar was not expected to introduce the tax at this time after facing a boycott and the closing of travel, trade and diplomatic ties by the UAE, Saudi Arabia and Bahrain.

Read: Trump wants progress on Qatar rift before hosting GCC leaders

The IMF expects VAT to generate revenue equivalent to 1.5-3 per cent of non-oil GDP and there is anticipated to be little impact on inflation and GDP growth.

This is partly because of new benefits introduced by governments including a social assistance system and monthly payments to government workers in Saudi.

Read: Saudi hardship payments will boost economy, but could impact deficit

“It will have a small effect on GDP, but again [based on] experiences from around the world, particularly for low levels of VAT, we don’t see that as a major negative impact on growth,” said Senhadji.

The official indicated that regional governments could introduce more taxes to boost revenue, but cautioned that a corporate tax could see capital leave the region.

“This [introducing corporate taxes] is a decision you can’t make in isolation. You have to think of what other countries are providing in terms of taxes and incentives and other incentives for attracting investments and this a world-wide issue.”

UAE minister of state for financial affairs Obaid Al Tayer said earlier this month that the country was in the early stages of planning a corporate tax framework.

Read: UAE studies corporate tax framework

Senhajdi said there was also scope to introduce income tax but he suggested it would need to be “politically feasible” and make economic sense.

Read: GCC governments expected to delay further taxes – S&P