The case for the introduction of VAT in 2018 remains compelling
Regional VAT delays should not deter UAE and Saudi
Around the world, January 1st is traditionally welcomed in accompanied by the strains of Scotland’s national bard Robert Burns’ famous poem “Auld Lang Syne”. In many parts of the Arabian Gulf however, another famous Burns phrase may be more apt: “The best-laid plans of mice and men often go awry.”
The introduction of VAT across the GCC on January 1st has been on the cards since May 2015, when the six countries making up the economic bloc signed a draft framework for the introduction of the levy following more than 10 years of discussions on the subject. The economic case for such a tax has grown ever more compelling over the past two and a half years has grown more compelling, as governments across the region seek to generate additional revenues as hydrocarbon revenues fall and deficits rise.
But the best-laid plans for a region-wide VAT may well go awry come the January 1st deadline, according to Abdelhak Senhadji, deputy director of the fiscal affairs department at the IMF. Of the six countries set to introduce the tax (on which the IMF is giving technical assistance), only the UAE and Saudi Arabia have published their own VAT laws and have publically committed to the January timetable.
But while such delays raise questions about the practicalities of how VAT should be introduced across the region, tax is no longer a taboo subject for governments. Fiscal consolidation has picked up considerably since the VAT framework’s signing, via direct taxes such as the introduction this month of excise tax in the UAE, as well as indirect taxes including the new price mechanisms for petrol and lower subsidies on electricity and water.
The case for the introduction of VAT in Saudi Arabia and the UAE at the start of next year therefore remains compelling, even if other countries don’t immediately follow suit.
“Countries should not necessarily rely on the laggards to delay the reforms that are necessary for them to restore fiscal sustainability,” notes the IMF’s Mr Senhadji. The UAE and Saudi Arabia are showing the way for other countries in the region with regard to VAT. It is in other countries' interests to , who would be wise to follow suit with their own VAT implementation as soon as possible.