Explore new taxes in UAE, GCC but reduce complexity: IMF

The UAE and neighbouring Gulf Cooperation Council (GCC) countries could increase their revenues and further diversify their economies by exploring new taxes, the International Monetary Fund (IMF) said.

“Exploring options such as property taxes, luxury taxes, or environmental levies would further support revenue mobilisation as the economy diversifies,” the Fund said in the latest report on the Gulf region.

The Gulf states are in the process of broadening their tax base in order to increase their revenues. The oil-rich bloc has already implemented introducing value-added tax, excise tax and corporate income tax to move away from petrodollars.

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The sharp decline in oil prices in the last decade prompted a wave of consumption tax reforms in the UAE and GCC. Currently, the value-added tax (VAT) is in place in four GCC countries – Bahrain, Oman, Saudi Arabia, and the UAE – and excises are adopted by all except Kuwait.

Similarly, Oman has announced a plan to implement an income tax, becoming the first nation in the region to announce a tax on individual income. While some countries have also announced a 15 per cent minimum domestic top-up tax on multinational companies.

Reduce complexity

However, the IMF said that reducing tax complexity would help boost tax collection.

Implementation of taxes is a complex task which took decades in advanced economies. Since oil-producing Gulf countries are relatively new to introducing taxes as compared to OECD and other larger economies, governments are still in the phase of updating laws and regulations around new taxes to ensure compliance as well as implementation of modern tax collection systems.

The IMF said in the report that the GCC countries have a large gap relative to the potential for mobilising tax revenues. The gap is much wider than other emerging, developing and advanced economies, therefore, the oil-producing Gulf countries have been introducing taxes for the past few years.

These policies are consistent with reducing dependency on hydrocarbon revenue and enhancing macroeconomic stability. Considerations for corporate income tax (CIT) reforms have recently come to the fore in the GCC, prompted by the changing international landscape of taxing multinational enterprises and the revenue diversification process.

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