(P)GCC States Prepare for VAT

Oil-rich Persian Gulf countries, which for decades have attracted millions of foreign workers thanks to their reputation as tax-free havens, aim to introduce value-added tax in 2018 to plug budget holes, AFP reported. On top of administrative and technical hurdles, however, the project now faces an unprecedented diplomatic crisis after Saudi Arabia, the UAE and Bahrain on June 5 severed all ties with Qatar, their partner in the (Persian) Gulf Cooperation Council. Saudi Arabia, the UAE and Qatar are due to introduce VAT in early 2018, with the other three (Bahrain, Kuwait and Oman) following at a later date. In case of a prolonged crisis, Qatar would have to replace imports from Saudi Arabia and UAE, valued at $4.55 billion annually, with “costlier” non-(P)GCC goods, said M.R. Raghu, head of research at the Kuwait Financial Center. “Implementing VAT in such a scenario would lead to inflationary pressures, especially in food-related items,” he said.