The latest VAT or Value Added Tax has been in the talks since late 2017. There have been many speculations about the effect of the VAT on GCC economies. In particular, its tourism-based economies such as UAE that has come under speculation radar.
The truth remains that the GCC economies need their time to adapt accordingly to the markets new taxation laws. It is also predicted that the GCC governments are going to gain a significant chunk of their revenue from the VAT. No wonder, the VAT was designed to wean off the government revenue from the oil industry-based revenue system, which is likely to dry up in the future.
This brief excerpt aims at speculating the possibility that the latest Value Added Tax in the Gulf nations might even propel their economic growth in the coming decades. However, since VAT laws are going to differ from one another, the results of the new taxation system may vary.
According to a senior official of the Abu Dhabi Commercial Bank, the economies of all GCC members is set to grow by a rate of 1.2% to 1.6% of their current GDPs. As per the report, this is anticipated to happen within the first year of the introduction of the tax. Also, within the various GCC nations, Saudi Arabia and UAE are said to gain the highest revenue from the Value Added Tax.
According to the International Monetary Fund, this revenue is set to increase the highest for UAE since it has relatively mature hydrocarbons and tourism-based economy. The IMF also says that the introduction of VAT is going to decrease the minus 0.2 fiscal deficit in the UAE.
According to the Khaleej Times, UAE is also set to experience an addition of 10 billion Dirhams to 12 billion Dirhams every year. This phenomenon can be attributed to the UAEs latest VAT laws that has brought more people under the taxation umbrella. Similarly, for the Kingdom Of Saudi Arabia, the government treasuries will witness significant growth in the coming years. This phenomenon can also be partially attributed to the GCC economies that are now further pushing for private sector growth. This, added with the latest VAT will lead to a significant rise in non-hydrocarbon tax revenue.
However, the growth led by VAT in the GCC goes beyond filling government coffers through tax revenue. The introduction of the Value Added Tax will also lead to the creation of another economic layer that will allow the government to analyze the socio-economic change occurring as well as understand the nature of their respective economies.
Although it was tough for several businesses in the GCC to adapt according to the new VAT laws, the process became easier with time. Also, all the speculations regarding the negative effects of VAT have been proven to be untrue as the Value Added Tax has increased the government’s taxation income.