Last week the International Monetary Fund issued a new report on the potential for tax diversification in the countries of the Gulf Cooperative Council.
It was noted that due to the region’s relatively low tax burdens, the governments of GCC countries have the opportunity to create a modern and efficient tax system by eliminating any wasteful and inefficient existing taxes to be replaced with new highly targeted levies.
However, while there is significant room to implement a new tax system, it was warned that any changes should be paced to allow businesses and taxpayers to adjust, in order to ensure the long-term sustainability of the taxes.
As the first, and potentially most important, step in the establishment of a tax system is the successful introduction of a VAT system and excise taxes.
Further it was noted that while VAT and excise taxes should be harmonized in the region, there is no strong argument for harmonizing tobacco, sin taxes, or taxes on sugary drinks, and that the rates should be set to match the health goals of the country.
The report also addressed the recent proposals to implement a tax on outward remittance by expats in the GCC, however, it was noted that the tax would draw only minor revenues, but would entail significant operation costs, and could hurt economic efficiency and the area’s business reputation.