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A taxing delay for GCC firms
The introduction of a value-added tax could be a financial blow to companies that are slow to update their contracts.
May 7, 2010 9:39 by Emily Meredith
But when a contraction or recession drives energy demand down, hydrocarbon revenues decrease.
“You have this double effect on the economy,” the chief economist at the Dubai International Financial Center, Nasser Saidi, says. “And then you aggravate what is already the boom and bust cycle.”
Although many GCC countries have corporate taxes, their revenues come from a relatively small number of sources. “What we tend to see in this part of the world is a reliance on one or two taxes rather than a reliance on a whole range of taxes,” a partner for Pricewaterhouse Coopers’ Middle East Tax practice, Dean Rolfe, says.
Studies undertaken by the IMF and championed by Dubai Customs – which faces significant losses under a trade agreement that eliminates or greatly reduces duties – showed that the VAT could double customs revenues.
Saidi also says that proving guaranteed revenue streams from a VAT will enable regional governments to more easily gain access to credit. As banks become more reluctant to lend based on implicit guarantees, this will become more important.
Ehtisham Ahmed, who works as an advisor in the U.A.E.’s prime minister’s office, says he does not think the introduction of consumption based taxes will lead to personal taxes. “That’s not going to happen with the current environment.”
More importantly, companies and consumers frequently encounter what Ahmed calls “nuisance fees,” or charges for services from government agencies. The economic impact of these disparate charges is largely unknown.