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Lagarde Urges (P)GCC Arabs to Set Up Revenue Target

Lagarde Urges (P)GCC Arabs to Set Up Revenue TargetLagarde Urges (P)GCC Arabs to Set Up Revenue Target

Christine Lagarde, the managing director of the International Monetary Fund, asked the second annual Arab Fiscal Forum on Arab states on Sunday, to implement five-to-10-year revenue targets and share reliable data on tax collection revenues in order to reduce borrowing costs.

Lagarde said in her key note titled “Generating Public Revenue to Build Resilient Economies” addressing ministers of finance from the (Persian) Gulf Cooperation Council that they “need to build resilience” in the face of global uncertainty and questions about geopolitical developments “in many regions of the world”, Xinhua reported.

Lagarde said, “A good first step is establishing a five-to-ten-year revenue target. After that, a comprehensive reform plan is necessary, aiming at long-term institution building rather than short-term fixes.”

Revenue targets, she added, are essential goal posts that can “help you align your revenues with your spending—both in the short term and the medium term.”

As a reference country, Lagarde mentioned Algeria, a major oil and gas exporting nation, “where the 2017 budget law for the first time includes a medium-term framework that sets revenue and spending targets for the next three years.”

In oil-exporting countries, this means diversifying the sources of revenue away from oil and gas, she explained, praising (P)GCC states (Saudi Arabia, Kuwait, the UAE, Qatar, Bahrain, and Oman) for introducing a harmonized value-added tax of 5% on most goods and services in 2018.

“These efforts—which the IMF has supported through its technical assistance—could raise anywhere from 1-2% of GDP, assuming a VAT rate of 5%,” said Lagarde.

Over time, governments may also consider deriving additional revenue from income and property taxation, she added.

Personal income is not taxed in the Persian Gulf Arab oil states, while profits of corporations are modestly taxed in some cases (in the fiscal forum’s host country UAE foreign banks pay a 20% tax on their profits).

The IMF’s experience in other regions underscore the positive impact of diversification, she said, mentioning “Mexico, for example, was able to boost its non-oil tax revenue by more than 3% of GDP—by broadening the VAT base and raising energy taxes and personal income tax rates.”

In the oil-importing countries the key priority is to generate higher revenue by broadening the base of existing taxes, she said. “Such reforms would make tax systems simpler, more efficient, and more equitable.” 

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