The large untaxed expatriate populations in the GCC put a burden on the respective countries’ public utilities and should make a greater contribution to the development of such services, a Dubai-based economic expert has said.
“The GCC countries have large non-resident and largely untaxed expatriate populations that place a growing burden on public utilities and services,” Dr Nasser Al Saidi, Chief Economist of the Dubai International Financial Centre Authority, said in an article published by tax consultancy Ernst & Young.
He added that the expatriates “should make a greater contribution to the provision and financing of public goods and infrastructure investment.”
Dr Saidi, who expressed these views in his personal capacity and not as representing official views, suggested that “[t]he GCC countries should establish a broad-based taxation system in the form of a Value Added Tax [VAT].”
He also suggested that doing away with heavy subsidies in petrol, diesel, water and power tariffs in the GCC would reduce the non-oil fiscal deficit in these countries and free up resources needed for investing in human capital and core infrastructure in the GCC.
At the same time, Dr Saidi maintained that instead of subsidising fuel prices, GCC governments should mull imposing a carbon tax to offset some of the costs incurred during the development of clean technologies.
“The GCC countries, blessed with the enormous potential of harnessing solar power, should be phasing out oil subsidies and imposing a carbon tax to subsidise clean technologies and alternative energy sources,” he said.
While at VAT, he maintains that such a levy would not only add to the governments’ revenues, but also help GCC countries achieve greater fiscal equity. “Introducing a GCC-wide VAT would provide governments with a more stable, buoyant source of revenue, growing with their economies and not subject to energy price volatility,” Dr Saidi said.
“Introducing VAT at a relatively low level of 5 per cent would replace external tariffs (thereby strengthening the international competitiveness of the GCC) and the inefficient multitude of distortionary fees, stamp duties and other excises which raise the cost of doing business, increase transactions costs and reduce economic efficiency,” the Dubai-based expert added.
“The introduction of VAT should not only be seen as a revenue diversification measure but also as part of achieving greater fiscal equity,” Dr Saidi pointed out.
The fuel subsidies, on the other hand, lead to surging domestic energy demand, affect the availability and product mix of oil exports, distort consumption and production patterns towards energy-intensive technologies (e.g. aluminium) and lead to environmental deterioration, he said.
“Removing the subsidies would lead to a large reduction in the non-oil fiscal deficit and free up resources needed for investing in human capital and core infrastructure in the GCC,” Dr Saidi believes.