To preserve economic and social stability and continue with development plans, the Middle East and North Africa region governments are considering tax measures to broaden their revenue base and increase tax yields.
The evolving tax landscape in the MENA region was discussed at the Ernst & Young MENA tax conference held recently in London. The conference was attended by EY tax specialists and senior finance and tax executives from major European companies with investments in the MENA region, Albawaba reported.
Sherif el-Kilany, MENA tax leader, EY, says: “Governments in the region have faced a myriad of challenges arising from political, economic and social factors. The economic cost of disruptions caused by the Arab Spring, urgent need for social reform and fall in oil price, represent challenges that governments are tackling head on with new fiscal reforms.
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 of the 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.”
Investment Incentives
Governments have recognized the importance of tax policy as a conduit to incentivizing multinational companies to establish in the region.
Asim Sheikh, EY MENA Business Tax Services Leader, says: “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 recognized 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.”
Whilst 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. Although tax rates have fallen, most countries have expanded their withholding tax regimes, introduced modern definitions of tax residence and permanent establishment concepts and published transfer pricing guidelines aimed at bringing increased sources of income into the domestic tax net.
“The impact of falling oil prices and the expected new norm of oil prices at lower levels are creating challenges for countries that are committed to large capital expenditure programs. Countries in the region have reported budget deficits due to lower oil and gas revenues and have recognized the need to further broaden their revenue take from taxation and are now focused on introducing indirect taxation regimes,” Asim said.
