The Gulf Cooperation Council (GCC) countries are putting the final touches to an agreement that would introduce a unified value-added tax (VAT) of up to 5 percent starting in 2018, according to media reports on Friday.
According to the agreement, all six Gulf countries will have their own VAT laws, and if any two members state their willingness, then work on the unified VAT system will begin, with implementation likely in 2018, said Younes Al-Khouri, the United Arab Emirates’ deputy minister of finance.
Al-Khouri made these comments on the sidelines of the first meeting of the under-secretaries of the Arab ministries of finance, organized by the United Arab Emirates’ Finance Ministry in cooperation with the Arab Monetary Fund, which is taking place in Abu Dhabi.
He said the countries are in the final stages of preparing the GCC-wide tax laws and that the Gulf countries — Saudi Arabia, Bahrain, Kuwait, United Arab Emirates, Qatar and Oman — would not impose VAT on some key sectors, such as health, education and social services. The tax would exclude 95 food items, he said.
“There will be no exemptions, and all consumers will pay the VAT upon its application,” he said. “Initially there will be a single rate for all goods.” He did not provide details, but reports have indicated it would be about 5 percent.
In an interview with The Economist magazine published last week, Deputy Crown Prince Mohammed bin Salman, second deputy premier and defense minister, confirmed that Saudi Arabia was gearing up for the introduction of VAT but ruled out the imposition of any income tax in the country.
Introducing VAT would be a major economic reform in the Gulf Cooperation Council states, which have minimal tax systems and no tax on income, although some levy fees such as road tolls.
The plunge in oil prices since last year has slashed government incomes, making it more urgent for them to find new revenue. To limit smuggling and damage to competitiveness, analysts say, the Gulf countries should introduce VAT regionally rather than individually, at different times.
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