Mena states plan new taxes to meet budget deficits

Dubai - Fiscal policy initiatives are now focusing on ways to broaden the revenue base, promote investment in projects that create value addition to existing oil and gas export projects.

Governments in the Middle East and North Africa (Mena), faced with the fall in oil price and need for social reform, are considering tax measures to broaden their revenue base and increase tax yields, according to EY tax specialists.
Sherif El-Kilany, Mena tax leader, EY, said the economic cost of the disruptions caused by the Arab Spring, the urgent need for social reform and fall in oil price represent challenges that governments are tackling head on with new fiscal reforms.
"Governments in the region have faced a myriad of challenges arising from political, economic and social factors. Fiscal policy initiatives are now focusing on ways to broaden the revenue base, promote investment in projects that create value addition to existing oil and gas export projects and stimulate investment in the non-oil and gas sector.
"Most countries in the region have embarked on large-scale infrastructure development projects, including rail, seaports, electricity and water generation, and improvements to transport networks and industrial facilities," said El-Kilany.
Governments have recognised the importance of tax policy as a conduit to incentivising multinational companies to establish in the region, he said.
Governments in the GCC countries are considering various tax reforms, including the imposition of a uniform value added tax (VAT), and some countries, faced with a fall in oil revenues, are mulling corporate tax.
The six-nation GCC has been weighing the introduction of VAT since 2007 to broaden their revenue base, with negotiations happening jointly to avoid any one nation losing out in competition with others in the region. As per the Doha agreement, each GCC country is required to draft its own VAT law in the framework of the Gulf custom union principles.
A senior UAE Ministry of Finance official said recently that the UAE is making headway in setting up a federal tax system to bolster government revenues.
The drafting of laws for introducing corporate tax and VAT is expected to complete in the third quarter of this year. "The drafting of the corporate tax law and the value-added tax law has been discussed with the local and federal governments," Younis Haji Al Khouri, undersecretary at the ministry, was quoted by Reuters as saying.
He added that authorities were still evaluating the social and economic impact of the laws, but drafting was expected to be finished "very soon - within the third quarter of this year".
According to Reuters, a UAE Ministry of Finance report said the cabinet had approved versions of the corporate tax and VAT draft laws. It said the ministry was working on the creation of a federal tax authority, but did not say when the body might start operating.
Asim Sheikh, EY Mena Business tax services leader, said tax law reforms have led to a lowering of corporate tax rates and adoption of modern taxation principles aimed at providing greater certainty for taxpayers in how tax rules are applied.
"Most countries have also recognised the need to expand their double taxation treaty network aimed at enhanced cooperation with developed countries and improved exchange of information. The impact of these reforms has positioned Mena countries as being attractive locations to establish businesses and to operate trading hubs in the region."
"While the reforms have created a competitive tax landscape in the region, such reforms should not be interpreted as governments abdicating their right to collect their fair share of taxation.
"The impact of falling oil prices and the expected new norm of oil prices at lower levels is creating challenges for countries that are committed to large capital expenditure programmes. Countries in the region have reported budget deficits due to lower oil and gas revenues and have recognised the need to further broaden their revenue from taxation and are now focused on introducing indirect taxation regimes," added Sheikh.
- issacjohn@khaleejtimes.com