Gulf states reluctantly consider new taxes
Finance ministers from the Gulf Cooperation Council (GCC) states met in Manama recently to discuss a recommendation by the International Monetary Fund (IMF), encouraging them to introduce several new taxes in order to increase their non-oil revedanues and guard their economies against the volatile oil export earnings.
The participants of the meeting, held in the Bahraini capital in mid-October, have not yet concluded an official position on the problematic issue. A GCC official, however, asserted that there is no urgent need for imposing new taxes on the citizens of the Gulf states, as presently economic conditions are stable, Al-Hayat reported.
The recently released IMF report, entitled ‘A Strategy for Sustainable Development and Economic Stability in the GCC', warned Gulf states that crude oil sales alone will not achieve sustainable economic growth. It goes further to urge the GCC members to impose five types of taxes, including taxes on individual income, corporate profits, consumption, fees and value addition.
"GCC governments should also work to attract more foreign capital, mainly direct investment, which plays a vital role in the domestic economy in a world heading fast towards economic globalization," the report went on to say.
The GCC states generally do not impose income taxes but have introduced fees on key services to ease their financial burden and bolster non-oil revenues. The six GCC members, who control nearly 45 percent of the world's oil, earn more than two thirds of their national income from Oil exports. The pressure on GCC governments to diversify their non-oil income has been raised since the September 11 terror attacks in the USA, when oil prices declined sharply.
Although the introduction of direct taxes is no longer the outlandish notion it was in years past, imposing an income tax on local residents is still a political taboo. Governments fear that such a move would increase discontent and might well create more demands for greater political participation.
In the time being, government circles increasingly support indirect taxation. One idea is a multi-band sales tax, which applies different rates for different goods, likely to be phased in gradually. Fees for general services, including education and health, are also under review, as well as reductions in subsidies for electricity, water and communications. — (menareport.com)
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