IMF chief sees implementation of VAT generating up to 2% of Gulf region's GDP
The implementation of Value Added Tax (VAT) will generate between 1.3 to 2 percent GDP in the economies of the GCC despite the different speeds at which they will be implemented across its member states, according to Jihad Azour, the International Monetary Fund (IMF) director for the Middle East and Central Asia.
While the states of the GCC all originally agreed to implement VAT in January 2018, only Saudi Arabia and the UAE say they are prepared to do so, with the rest of the GCC’s member states expected to follow later.
Speaking at the launch of the IMF’s Regional Economic Outlook report in Dubai, Azour said that “all” the countries of the GCC are still committed to their preparations for the implementation of VAT, which he called “an important tax reform that requires preparation” and communication with the private sector “to be ready to help them.”
“Countries, especially those with a buffer, can decide on the timing of implementing those measures,” he added.
In his remarks, Azour said that the varying timeframes for VAT’s implementation are unlikely to have much effect on trade in the region.
“Saudi Arabia and the UAE are the two largest economies, and both of them have re-iterated their commitment to introduce [VAT]. Other countries can follow suit,” he noted. “It’s a domestic type of tax. The impact of this tax on other countries will be fairly limited.”
Azour added that the 5 percent rate of VAT, with a large number of products and services exempted or zero-rated, will help reduce the impact on prices to between 1.5 and 2 percent.
“It’s relatively mild for year one, and then progressively the impact on price will be much less,” he said, added that the impact of the market may be less if supply chains absorb some price increases.
With regards to Kuwait – whose government resigned on Monday – Azour said that the during previous IMF discussions, the country was still committed and preparing for VAT.
“I think we will have to wait until the government is formed, and for the government to [come up] with its economic programme, to see if VAT is still in their plan.”