VAT Finally Comes to the Gulf Countries

5 April 2016, 11:56

Imagine living in a country that has no VAT. It’s hard to imagine, because we’ve had it in the UK for a long time now. But some of the Gulf states are in that situation now, even though they won’t be for much longer.

According to various news reports, half-a-dozen Gulf states will soon have to start paying VAT. This has never happened in the states before, but the Gulf Co-operation Council (GCC) has deemed it necessary in order to help its falling income.

VAT will be introduced and will be paid by those living in Saudi Arabia, Qatar, Bahrain, Kuwait, Oman and the United Arab Emirates. The move has come about because oil prices have nosedived. Gas revenues have also dropped significantly. These countries have never wanted to tax their people, but now they have decided the time has come to do just that. Various military campaigns have also cost money, which in turn has led to a drop in revenues for the countries.

The fall in prices has meant the financial reserves in the Gulf countries have also dropped. Reports state that the countries will introduce VAT in 2018. The rate looks set to be between 3% and 5%. Certain items will not be taxed, such as healthcare and certain food items. However, many others will be subjected to the tax, changing life in these countries as their citizens currently know it.

A number of procedures still have to be decided and gone through prior to the VAT rules being put in place. Tax laws will need to be changed, for example. Despite the hurdles yet to be tackled, it would appear even the relatively-small rate of VAT to be introduced will make a big difference to the overall revenue enjoyed by the Gulf states.

There doesn’t appear to be much news in the way of comments from people living in these states. One would think never paying tax and then finding you have to start paying it would elicit some comments, but nothing seems to be forthcoming. However, the budget deficit currently being experienced by these states does need attention, and the VAT addition is hopefully going to solve that.

The price of a barrel of oil has dropped considerably recently. It is now worth only $40 – a far cry from what it was, and the lowest recorded value since the financial crisis. The uncertainty regarding the price of oil and the deficit currently experienced in their budget means there needs to be a solution – and for the Gulf states, that solution lies with VAT. It remains to be seen how this comes into being and what the citizens think about it.