2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | Article Archive

JAN | FEB | MAR | APR | MAY | JUN | JUL | AUG
Gulf’s upcoming VAT regime requires a holistic look
11/08/2016   Mohammad Al Asoomi - Gulf News

Following the GCC’s decision to levy value-added tax (VAT) from 2018, many questions have been raised on the feasibility of applying it on merchandise, though it is already being applied by many countries to help them provide additional resources to their budgets, support their financial positions as well as ration excessive consumption.

A GCC VAT will not exceed 5 per cent even though in some European countries it can be as high as 20 per cent.

It will contribute significantly to financial resources that would improve upon the Gulf’s current economic conditions and cut reliance on oil revenues.

Being aware of its advantages, the six states concluded a comprehensive agreement to levy VAT irrespective of future developments on oil prices. As expected, the GCC VAT will bring Dh50 billion to Dh55 billion in revenues annually, depending on the economic size of each country.

These will constitute a worthy resource to fund state budgets and cut down on deficit as a percentage of gross domestic production (GDP), which is an indicator that measures the strength of local economies. Deficits had increased notably over the past two years due to huge decline in oil revenues.



No VAT on basic commodities

As VAT will not be applied on basic commodities — including food, drinks, medicines and other necessities — it will then have limited effect on the living standards. It will support government resources and help implement some developmental projects that would create more job opportunities and increase growth rates.

It will also improve many free services provided by the government for both citizens, especially in educational and health sectors besides other infrastructure services.

Imposing VAT on luxury goods will definitely contribute to rationalising the excessive consumption of such products and affecting the trade balance due to the increase in such imports.

Technically, the application of VAT will help considerably develop accurate national accounts for the GDP economic data, which currently suffer from unstable assessments made by more than one relevant body.

The forthcoming measure, which will enter into effect 16 months from now, represents an objective necessity to set the stage for the GCC’s post-oil era. The six states have started to do so through a number of steps that will serve this developmental approach.

Consequently, the financial measures taken are not meant only to change the consumption patterns but also to change the community’s perception of consumption in general.



Rationalisation

The measures are also designed to be in line with the government approaches and teach people not to depend on subsidies, which have been around a long time.

The current circumstances required an optimal rationalisation of public subsidies. These costs weighed heavily on government budgets and required fixed and constant financial resources. It is widely known that the GCC usage rates of water and electricity are the highest in the world. So, it has become a must to rationalise them and has been made clear by the new approach.

The practical measure adopted by the GCC states should be in sync with a deep social and cultural understanding so as to complete the picture of future GCC economies that are not dependent on oil.

Most Viewed Companies
Ticker Price Volume
GFH 0.46 3,578,848
DSI 0.39 45,711,538
BKSB 0.14 275,822
DAMAC 3.84 686,475
AIRARABIA 1.12 4,055,524
SABIC 98.06 2,513,945
ALINMA 16.41 24,441,807
Recent Articles

Saudi Arabia Builds Cities in the Sand to Move Beyond Oil
After relying on oil to fuel its economy for more than half a century, Saudi Arabia is turning to its other abundant natural resource to take it beyond the oil age -- desert. The kingdom is convertin

VAT in Saudi Arabia and the UAE - how do they compare?
As the UAE and Saudi Arabia continue to lead the GCC VAT drive, this article compares the key features of the future value added tax (VAT) regime in these countries including the treatment of differe

Asian tech supplants oil as main fuel for emerging stocks
Not very long ago, a 17 percent oil price fall would have sent emerging market stocks into a tailspin. But this year they are set for their best first half since 2014.

The reason? Like muc

How Saudi Arabia can become a post-oil economy
Saudi Arabia has achieved much of its past economic success on the back of endowments of natural resources, particularly oil and gas. Saudi Arabia’s Vision 2030 reflects a clear recognition that this

'Axis of love': Saudi-Russia detente heralds new oil order
A meeting between the two men who run Russia and Saudi Arabia's oil empires spoke volumes about the new relationship between the energy superpowers.

It was the first time that Rosneft (ROS

GulfBase GCC Index
Search By
  • Company Symbol
  • Company Name
  • Mutual Fund Name
  • News Content
Send this page to a friend

Poll

Looking ahead, what change you are more likely to make in investing in your domestic stock market?