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VAT to double Dubai revenues

“The deadline for the implementation of VAT at the Gulf Cooperation Council, or GCC, level is 2012 and the emirate will generate double the revenues it earns through customs duties,” Ahmad told reporters on the sidelines of a taxation workshop conducted by Dubai International Financial Centre on Monday.

The main issue for the VAT implementation is its administration, he pointed out and said only Saudi Arabia has made significant progress to introduce the proposed tax structure in the region.

“Saudi Arabia has done excellent work on it during the last 10 years and they are ready,” Ahmad said adding that Dubai Customs has also done a lot of work on VAT implementation. He said other Gulf countries such as Bahrain, Oman and Qatar are also making good progress. “All six GCC states are on track to meet the 2012 deadline.”

He said finance ministers of the GCC countries will meet in May to discuss VAT and they may give a green signal after that it will submit to heads of states for final approval. He said Free Trade Agreements signed by the GCC countries are causing around 70 to 80 per cent loss of revenues and VAT will help cope these losses after its implementation.

There are no double tax treaties between GCC countries, however, each of the GCC countries have signed a number of treaties with non-GCC countries. The UAE tops with 40 accords while the GCC total treaties reach 153.

Earlier speakers at the workshop, examined the mechanisms necessary for administering a broad-based taxation regime and how the introduction of VAT could impact the economy of a region that is considered a haven from personal income taxes and often corporate taxes. The workshop also discussed how the introduction of VAT could facilitate the planned GCC monetary union.

Dr Nasser Al Saidi, Chief Economist of the DIFC Authority, said: “Government finances in GCC countries are highly dependent on revenues from hydrocarbon exports, which makes them vulnerable to the volatility of oil and gas prices.”

“Volatility in government revenues affects expenditure plans and investment spending in development projects, which in turn threatens the sustainability of economic growth. To address these financial and economic vulnerabilities, GCC countries need to understand public finance reform and diversify their government revenue sources by considering various sources of taxation, including sales taxes and value added taxation.”

Dean Rolfe, Tax Partner, Middle East Tax Leader of PricewaterhouseCoopers said: “The tax environment in the Middle East is evolving rapidly. This evolution is being driven partly by a need to compete for foreign direct investment and partly by a need to diversify revenue streams. Reform of tax systems in the region is gathering pace with Qatar, Oman and Kuwait recently rewriting their corporate income tax laws.”

· abdulbasit@khaleejtimes.com