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Taxes best option for GCC to boost fiscal position

DUBAI, November 15, 2015

GCC countries will be able to cope with lower oil prices as they have over $2.5 trillion in reserves and low percentages of debt, but for long-term economic sustainability, imposing tax is the best solution for GCC countries, said experts at a recent discussion in Dubai.

While lower oil prices are expected to slow down the GCC economies, it should be seen as an opportunity for countries to restructure and broaden revenue sources, they stated.

The discussion was hosted by the corporate finance faculty of ICAEW, a world leading professional membership organisation that promotes, develops and supports over 144,000 chartered accountants worldwide.

The speakers spoke at length on how fiscal reform will affect businesses in the GCC countries.

During the panel discussion, majority of the speakers said there was a pressing need to raise taxes in GCC countries in order to diversify revenues and strengthen their fiscal positions.

The panellists included Jeanine Daou, a partner and head of indirect taxes at PwC; Gary Dugan, the managing director of Global Wealth, CIO and head of investment strategy at NBAD; Trevor McFarlane, the chief executive officer of Emerging Markets Intelligence and Research and Ashok Hariharan, a partner and regional head of Tax Mesa at KPMG.

The discussion was moderated by David Staples, the managing director (Corporate Finance) for Europe, Middle East and Africa (EMEA) region at Moody’s.

Following an introduction by Sanjay Vig, the managing director at Alpen Capital and chair of ICAEW’s Corporate Finance Faculty network in the Middle East, panellists and invited guests debated what fiscal reform will mean for business in the region.

Panellists agreed that the lower oil price is not a disaster for GCC counties as they have more than $2.5 trillion in reserves and very low percentages of debt. However, for long-term economic sustainability, GCC countries must continue, and accelerate diversifying their revenues.

Panellists agreed that imposing tax is the best solution for GCC countries to broaden revenues as other approaches, such as cutting subsidies or spending, will be difficult to implement at this stage.

Michael Armstrong, FCA and ICAEW regional director for the Middle East, Africa and South Asia, said: "There is growing international focus on taxation. Countries are looking for more information on multinational companies who are shifting their profits to countries with lower tax rates."

"Now is therefore a perfect time for GCC countries to start levying taxes. This will be in step with international trends and will also help to diversify revenues," stated Armstrong.

Speakers said that GCC countries have been discussing a common tax framework for the past 10 years, which is now reaching its final stages. Based on the core principles of the framework, each country will have the choice to implement its own tax legislation and system.

According to panellists, the value added tax (VAT) is a viable option - and some form is expected to be introduced in the near future.

"This could be at a 3 to 5 per cent rate initially, but there are likely to be some exceptions to the levy. If introduced, VAT could generate up to 4-5 per cent of GDP," they stated.

The countries most likely to impose VAT are the UAE and Oman, while Other GCC countries will follow suit, said the experts.

However, most of the speakers agreed that the GCC countries were not ready to start imposing taxes right now as they are currently at different stages of preparation. The biggest challenge they are facing is resources, both in terms of infrastructure and expertise.

And even if the GCC makes up its mind, the tax systems should be well designed and done in a per fect manner. Otherwise, there would be the potential for aggressive tax avoidance as has been seen in some countries in the West, warned the experts.

The event was attended by almost 100 ICAEW members and senior business representatives from the major global and regional financial organisations.-TradeArabia News Service




Tags: GCC | tax | fiscal position |

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