Kuwait and Oman would have been wise not to delay VAT
The 6-member countries making up the GCC economic bloc have long signed an agreement to introduce taxes to help bring in non-oil revenues and plug dwindling oil revenues.
But today, it’s a different GCC, more fractured than ever as a result of an ongoing feud between Saudi, the UAE and Bahrain on one side and Qatar on the other, and with Kuwait and Oman left as mediators to an ongoing, seemingly unending struggle.
According to global accounting firm KPMG , Bahrain will from mid 2018 introduce a broad Valued Added Tax (VAT) at a rate of between 3-5%.
Already the UAE and Saudi have announced a Jan 1 2018 implementation.
Qatar had in November this year announced that it will not implement VAT despite signing the GCC agreement, perhaps trying to destabilize the economies of the region following an embargo imposed by the UAE, Saudi, Bahrain and Egypt.
A Qatari finance ministry source told Reuters that Doha was likely to introduce VAT in the second quarter of 2018 , but the ministry has not formally announced a date and the tax wasn’t included in the 2018 state budget.
But why would Oman and Kuwait opt for delaying VAT implementation to 2019 at a time of great need and large deficits?
Oman has delayed introducing a 5% VAT until 2019 but the country will introduce an excise tax on selected items next year to boost the country’s revenues, the Times of Oman reported, quoting finance ministry sources.
The rates of the new excise tax on tobacco, energy and carbonated drinks was not revealed, but looking at the UAE and Saudi, these levies vary between 50-100%.
In October, the UAE introduced excise tax on tobacco and energy drinks at a rate of 100%and energy drinks at a rate of 50%, with Saudi doing the same last June.
The IMF estimates that a 5% VAT rate could raise 1 to 2% the GDP in the GCC.
The body estimated Oman could raise its GDP by 1.7% or around $1.3bn.
According to Reuters, , Fitch Ratings cut Oman’s credit rating by one notch to BBB-minus earlier this month with a negative outlook, citing the country’s big budget deficit, which it estimated at 12.8% of GDP in 2017.
Standard & Poor’s already rates Omani debt as junk.
Oman’s state budget deficit for the first 10 months of 2017 narrowed to $8.31 billion from $12.5bn a year earlier, according to finance ministry data.
A CNBC Arabiya TV said that Kuwait has also decided to defer applying VAT until 2019, saying it was likely to give the National Assembly enough time to vote on the unified GCC to enforce the tax in all member states.
the Kuwait Ministry of Finance is expecting the deficit in the budget for 2017/2018 to reach 4.6%, reports Al-Rai daily.
Zawya reports that it was also assumed that the deficit will reduce by 28% compared to the actual deficit announced by Ministry of Finance at the final accounting of the fiscal year 2016/2017.
The then announced deficit was $19.5bn before deduction of 10% for the new generations fund, and $23.8bn after deducting it.
According to sources telling Zawya, public revenues are could reach $50.3bn and the expenditures $65.8bn.