GCC states urged to introduce taxes

30/11/2015 08:40 AST

GCC needs to bring in taxes and do away with subsidies by 2020 to ensure fiscal sustainability, a leading thinker has warned.

Iraq Energy Institute founder and director Luay Al Khatteb said the GCC countries can no longer rely solely on oil revenues to finance their budgets.

Oil has been a major contributor to government revenues, accounting for over 80 per cent of total government revenues for most GCC states, but with the price of oil down to a third of what it was about 15 months ago, it is time to widen the revenue base through not only diversification but also taxes and curb wasteful expenditure like subsidies, he added.

Mr Khatteb was one of the panellists at a discussion titled Oil & Markets during the IISS Bahrain Bay Forum that ended yesterday.

According to the International Monetary Fund (IMF) the share of pre-tax energy subsidies to fiscal expenditure is more than 10 per cent of GDP for Saudi Arabia and Bahrain. The GCC countries understand the complications of tax regime changes and are likely to follow a gradual implementation over multiple years, he said.

He also said public sector salaries need to come down to sensible levels to allow private sector to compete effectively.

Bahrain Centre for Strategic, International and Energy Studies (Derasat) International and Geo-Political Studies programme director Omar Al Ubaydli, who also spoke during the discussion, said GCC countries must form an energy bloc and function as a single market particularly for commodities trading.

According to him, this is the only way for the economies of the GCC which have ethno-cultural and geographic similarities and synergies.

“They should come together as a single market after a customs union and coordinate investments, plans, policies, research and development, to achieve strategic goals and energy security,” he said.

Dr Al Ubaydli added that global oil markets have seen a paradigm shift over the last 10 years due to shale oil revolution and the weak performance of the global economy.

Stanford University Holbrook Working Professor of Commodity Price Studies in Economics Frank Wolak said he expected global oil prices to stay low for the next 10 or 20 years and the most likely medium-term outcome was $50 to $70 per barrel.

“The primary reasons for continuing low prices include the slowing demand for oil in the industrialised world and ever-advancing technological change in the extraction and use of oil,” he added.

“And while geopolitical and environmental issues may unexpectedly arise that turn oil prices upward, Professor Wolak said many factors point to lower oil prices for the foreseeable future.”

The session was chaired by Sultan Hassanal Bolkiah Senior Fellow for Economic and Energy Security, International Institute for Strategic Studies Dr Pierre Noel who said it offered an informed analysis of supply side and demand side trends in global oil and gas markets and the impact of regional stability on both.

Gulf Daily News