New taxes will be the last resort to boost GCC revenues

Dubai: Lower government revenues resulting from declining oil prices are expected to trigger further fiscal reforms across the GCC countries, however analysts say new taxes will be the last resort for enhancing government revenues.

Fiscal adjustments are likely to start from cuts to capital expenditure in more vulnerable countries. “We see these fiscal reforms as positive for improving longer-term fiscal sustainability. On the spending side, we expect the GCC countries to target current expenditure,” said Monica Malik, Chief Economist of Abu Dhabi Commercial Bank.

Currently, revenues from customs duties are the main component of non-oil revenues of GCC governments, followed by corporate taxes on foreign companies, and other fees and levies. In the context of recent discussions on the introduction of a remittance tax in Oman Moody’s said introduction of any kind of direct taxes is unlikely.

“At this point, we do not believe that the introduction of new taxes — for instance on remittances or on non-strategic sectors — is likely. And while creating a GCC-wide, uniform value-added tax has been under discussion since before the global financial crisis, there has been no progress on this issue since 201l,” Moody’s said in a report.

Considering the competitiveness impact of taxation and humanitarian considerations involved in such a move, analysts said introduction of new taxes is unlikely. “Intermittent talks on taxing remittances or imposing a service fee have occurred in the past. But it has always remained at a stage of debate, probably because of the human angle involved in such a move, considering that a large share of the migrant population are blue-collar workers,” said Sudhesh Giriyan, Vice President and Business Head, Xpress Money.

With growing demand for migrant labour for the rapid developments in the region, tax on remittance is expected to deter skill flow. “It has been proven that curbs in any form on repatriating earnings could deter migration. In the past when curbs on sending money were imposed in Africa, migrant flows had ebbed indicating negative impact of such moves,” said Promoth Manghat, Vice President, Global Operations, UAE Exchange.