Next year will go down in history for making taxation on consumption an everyday fact of life in the Gulf countries ... or at least in most member states. Also, higher fees on governmental services are on the way. And more state subsidies are likely to be phased out.
Clearly, the days when GCC economies were regarded as tax-free havens and for offering subsidised goods are largely over. Increasingly, the Gulf would adopt the notion of pay your way, and those wanting state services must show a willingness to pay normal — not low or special — rates.
If any, the decline in oil prices on the back of strong supply in non-Opec countries, notably that of US shale oil, required a revisit of public finances throughout the GCC, including countries with substantial financial reserves. Entities like the IMF have long argued the need for more diversified sources of revenues to bolster state budgets on a sustainable basis.
Saudi Arabia and the UAE have announced their intentions to apply value-added tax at the start of 2018. It should soon become clear as to which items are excluded from the new tax. One thing for sure, the VAT regime will start at 5 per cent, but a higher rate at a later stage cannot be ruled out.
Other member states are less sure, ostensibly awaiting results from the implementation in the largest Gulf economies. Oman has announced a delay until 2019, seemingly to ensure putting all the necessary requirements in place. Bahrain is considering opting for VAT in the second-half of 2018 and Qatar could apply from the second quarter of 2018.
Still, Bahrain has confirmed implementation of an excise tax from December 30. The excise tax places a 100 per cent additional tax on tobacco and energy drinks, plus 50 per cent on soft drinks. Officials have warned of penalties on vendors failing to comply with the new order.
In June, Saudi Arabia became the first country in the GCC to implement the excise tax and the UAE followed in October. The excise tax in Bahrain is vital, partly to end differences in retail price of cigarettes with those prevailing in Saudi Arabia. In recent months, the Marlboro brand experienced shortages at times in the Bahrain market, with visitors from Saudi Arabia taking advantage of lower prices.
The excise tax should bridge price differences between Bahrain and Saudi Arabia. However, a new challenge — but not of the same magnitude — would emerge, namely the delay of VAT in Bahrain.
Oman plans to introduce excise taxes in the second-half of 2018. Yet, there is lack of definitive information about any possible moves by other Gulf states regarding the nature of taxes on consumption. The parliament in Kuwait is not noted for swiftly endorsing governmental moves for applying any form of taxation on the public.
In fact, it is hard to imagine a reversing of the new approaches to public finance in the GCC. There will be the fresh taxes and a reduction in subsidies, and even a rebound in oil prices. Gulf countries have a lifetime opportunity to recondition state finances.
The writer is a Member of Parliament in Bahrain.
