VAT . . . a Good Thing?
The tax-free environment in the GCC is set to change, VAT will help GCC economies experience diversified growth, says Mas Meghji
May 17, 2012 3:18 by kippreport
The VAT does not distort the producers’ production decisions, since it does not affect the prices that businesses pay for their inputs.
There are three main reasons why countries introduce VAT. First, revenue: VAT creates a reliable alternative revenue source, especially in countries that rely heavily on a single revenue source such as oil, which can be volatile.
Second, neutrality: Unlike other taxes, VAT has no distortionary economic effect. Third, efficiency: VAT is relatively more efficient than other taxes in terms of tax administration, it does not cascade liabilities, it does not use multiple tax rates, it does not tax exports and capital goods, and has a broader tax base.
Looking at the tax landscape of the Middle East and North Africa region, the recent political developments and changes have led to economic pressures impacting the taxation policies of almost all countries in the MENA region. On the one hand countries have moved toward a more transparent and business friendly tax environment. On the other, increased regulation and the enforcement of tax compliance is seen as leading to an increased administrative burden which, for foreign businesses, may translate to potentially higher tax cost.
Most countries have lowered tax rates to encourage investment, while fiscal policy dictates increased tax collections to strengthen public finances and fund social development, said Sherif El-Kilany, MENA Tax Leader, Ernst & Young.
Looking ahead, Sherif said: “From a regional tax perspective, we are likely to see a continuance of low corporate
tax rates to encourage local and regional investment.