Gulf countries play down VAT impact on prices

Gulf oil producers sought yesterday to reassure citizens on their plan to introduce value added tax (VAT), saying it would not affect their income that has already been eroded by a surge in rents and other prices.

The Gulf Co-operation Council (GCC), which does not impose income taxes, said the introduction of Vat would only replace customs tariffs that are already levied by member states and expected to be cut shortly.

"The planned VAT will not have any impact on citizens because they will merely replace fees paid by final consumers on goods or services they buy… besides, this tax will not be on income or profits," said Abdul Aziz Al Owaishik, Director of Economic Co-operation at the Riyadh-based GCC Secretariat.

"The tax will just replace the present customs tariffs, which will again be lowered following the signing by GCC states of World Trade Organisation (WTO) agreements… this means the VAT will be introduced as a replacement to these tariffs and will have no major price effect on goods or services sold to the consumers," Owaishik told the Saudi Arabic language daily Asharqalawsat.

GCC states had agreed to enforce Vat this year but the plan was delayed because of soaring inflation rates in member states and procedural factors.

Bankers said the dominant foreign labour in the GCC needs to be reassured about any tax plans on the grounds highly-skilled expatriates are attracted to the region by the absence of income tax.

They recalled that a decision by Saudi Arabia to impose income taxes over 15 years ago triggered mass resignations among its foreign professional labour community and forced the kingdom to quickly retract that decision.