New GCC VAT will have minimal effect on inflation: Report

Published March 26th, 2017 - 01:08 GMT
Doha, Qatar. (File photo)
Doha, Qatar. (File photo)

The introduction of a 5 percent value-added tax (VAT) in Qatar and other GCC countries in 2018 will only have a marginal effect on consumers and inflation, BMI Research said in its latest report

The report said that the introduction of VAT would be an important step as the region seeks to increase non-oil revenues. 

It will have a positive impact on the region's fiscal position, while only having a minor effect on inflation and economic activity

The introduction of VAT is part of a far wider fiscal consolidation plan, as the region tries to manage significantly lower oil revenues with broader measures including subsidy cuts and public sector employment freezes. 

The GCC states have one year starting from January 1, 2018 to introduce VAT, and there will be a range of exemptions, including on foodstuffs and other essential service sectors such as healthcare and education. Goods such as electronics, phones, cars, jewellery, restaurants and entertainment will be included, along with financial services.

"Given our forecasts for oil prices to stay below $70 a barrel, we forecast most of the GCC to continue posting fiscal deficits over the next five years. It is therefore likely that VAT will be raised to 10 percent over the coming years, once the new laws are embedded and
compliance issues are resolved," BMI Research said. 

"For consumer sectors across the region there will be an impact, and our autos team expects there to be an uptick in sales in 2017 before the tax is introduced," it said. 

However, the report said, given the wealth of most consumers in the GCC the impact will be marginal.

The 5 percent introduction is small, and the array of exemptions means it will hardly affect the major components of each country's consumer price index basket, most notably food and beverages. The UAE will be the most affected by the introduction of VAT, the report said.

Citing an IMF study, the report said that the UAE would raise 2.1 percent from the tax, compared to 1.1 percent in Qatar and 2 percent in Kuwait.

By Satyendra Pathak


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