By: Mahmoud Gamal
Mubasher: Governments across the GCC are planning to impose taxes in an attempt to boost revenues following the sharp drop in oil prices since mid-2014, which has resulted in many of these governments incurring budget deficits for the first time in years.
The taxes set to be implemented in 2017 and 2018 fall under a framework of economic reforms through which governments aim to increase and diversify their income away from oil revenues.
Among the planned taxes is the value-added tax (VAT), which will be imposed in the first quarter of 2018, added to the selective tax, which is slated for implementation this year on several products that are considered harmful to people’s health such as tobacco, and soft and energy drinks.
The VAT is a type of tax by which the value of an article or item rises at each stage of its production or distribution, whereas the selective tax is an indirect tax imposed on the end consumer and on products that hard the public health or environment.
Taxes begin in Saudi Arabia
Saudi Arabia has led its GCC counterparts in imposing the selective taxes. The government published the executive regulations for the tax in the official gazette, setting the start date for implementation on 10 June 2017.
The kingdom forecasts annual revenues from the tax to reach around SAR 8 billion ($2.13 billion).
The government said it will impose a 50% selective tax on soft drinks and 100% on tobacco.
UAE follows suit
The UAE comes in second in terms of imposing the selective sales tax after its Ministry of Finance (MoF) said it will begin implementing the tax in Q4-17.
The UAE government will impose the same tax percentages as its Saudi counterpart on tobacco and its derivatives and on soft drinks.
As for the VAT, the UAE’s MoF said in a statement that implementation will begin on 1 January 2018.
Analysts told Mubasher that the VAT was likely to bring in a combined $25 billion per annum to GCC governments. The taxes are a tool towards financial reform for Gulf government budgets, however, they will not end the deficits incurred by these countries, the analysts added.
Immediate reforms
Economic analyst Reda Bassiouny noted that GCC budget deficits have prompted governments to reduce their dependence on oil revenues and immediately carry out reforms to their expense and revenue schemes.
Saudi Arabia has already taken a number of austerity measures that have led to trimming spending a great deal, as evidenced by data for Q1-17, the analyst noted, indicating that the Kingdom logged $6.9 billion in expenses in the first three months of the year against forecasts of $14.9 billion.
All steps and decisions taken by Saudi Arabia alongside its 2030 Vision in reducing its dependence on oil revenues are likely to allow it to shrug off its deficit by the year 2020.
Non-oil revenues amounted to SAR 200 billion ($53.34 billion) by the end of 2016, up from SAR 166 billion ($44.27 billion) in 2015, registering an increase of around 20%. These revenues are forecast to rise to around SAR 212 billion ($56.54 billion) in 2017.
Meanwhile, in Qatar, budget expenses have fallen by around 2%, while revenues grew by 9%, resulting in a decline in the budget deficit to QAR 28.3 billion ($7.77 billion) in 2016 compared to QAR 46.5 billion ($12.77 billion) in 2015.
Translated by: Nada Adel Sobhi
