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

JAN | FEB
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
QNBK 153.6 156,445
SABIC 97.75 759,143
EEC 22.35 834,923
ZAIN 480 4,306,810
RJHI 64.75 950,876
DANA 0.45 17,092,585
MMG 12.55
Recent Articles

Why have shareholding companies sustained losses?
Okaz daily recently carried a report by Abdulrahman Al-Sabahi discussing the reasons why several shareholding companies have sustained losses. Al-Sabahi interviewed a number of economic analysts and

GCC budgets to resume spending and plug gaps with bond sales
Following two years of relative belt-tightening, Arabian Gulf governments have announced increased budgets for 2017 that are likely to boost spending in health care, education and infrastructure and

How landmark projects impact Dubai real estate value
The influence that an iconic project can have on its locale is often quite dramatic. Apart from becoming a magnet for activity and development, trophy properties or iconic projects have the ability t

Delinquent unit owners, a property manager’s pet peeve
The owners’ association (OA) is the heart of a jointly owned property (strata). In addition to enforcing the rules and regulations, its main function is to manage, operate and maintain the common are

Mena retail sector in 2017: What’s in store?
An unstable global economy, fraught with geopolitical uncertainty, left many wondering if retailers in the Mena region would struggle to turn a profit in 2016. Yet, just as challenges have come to ch

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?