A complete look at the upcoming VAT on the Gulf

A complete look at the upcoming VAT on the Gulf

It was announced this year that the GCC countries were going to starting implementing value-added tax (VAT) from 2018. This form of tax has already been applied in many countries in order for the government to have greater access to more resources for their countries budget, support financial position and ration excessive consumption. However, people in the GCC countries still have a lot of questions regarding the feasibility of the VAT on merchandise.
August 11, 2016
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Many European countries have VAT set up to 20 per cent but in the GCC, the VAT will not exceed more than 5 per cent. This tax levy is expected to have a significant impact on the Gulf’s current economic conditions as it will contribute to their financial resources and also help them become a little less dependent on oil revenues. Depending on the economic size of each country, the GCC VAT is projected to bring in Dh50 billion to Dh55 billion in revenues annually.

These funds will be important to state budgets as well as cut down on deficit as a percentage of gross domestic production (GDP). GDP signifies the measure of the local economy’s strength which due to the huge decline in oil revenues in the past two years, has shown an increase in deficit.

No VAT on basic commodities

VAT is expected to have a limited effect on the standard of living of these GCC countries as it will not be applied on basic commodities (such as food, drinks, medicines and other necessities). VAT can help boost many new developmental projects which will end up creating more jobs for individuals and increase growth rates as this form of tax is set out to be a very supportive resource for the government. It will also improve many free services provided by the government for both citizens, especially in educational and health sectors besides other infrastructure services.

Currently the economic data of the GDP is assessed in an unstable manner by more than one relevant body which the application of VAT can rectify by being used to produce precise national accounts of data.

The forthcoming measure, which will enter into effect 16 months from now, represents an objective necessity to. The six states have started to do so through a number of steps that will serve this.

The implementation of VAT in 2018 will set the stage for the GCC’s post-oil era. Currently the six states are working towards this developmental approach.

The VAT on luxury goods will also help ration the excessive consumption of these products and will have an impact on trade balance as more items will be imported from outside. However the financial measures are not only going to change the consumption patterns but is also meant to transform the way consumption in general is perceived by the community.

Rationalisation

The financial measures are also intended to teach people not to depend on subsidies that have always been around as well as government approaches.

The current conditions revealed that an optimal rationalisation of public subsidies was needed. The costs that resulted has a depleting impact on the governments budgets which would require financial resources that were fixed and constant.

Studies show that GCC consumption of water and electricity is the highest in the world making it a priority to downsize or rationalise them which is something that the new approach has clarified.

In order to ensure a stable economy for the GCC countries that is not reliant on oil, it is important that the practical measure approved by the six states is in line with a deep social and cultural understanding.

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