The International Monetary Fund (IMF) has again urged Gulf states to introduce income taxes to increase their revenues and guard their economies against unpredictable oil export earnings.

In a report revealed in Abu Dhabi this week, the IMF said Gulf Cooperation Council (GCC) states should drop their reluctance to introduce such taxes as crude oil sales alone will not achieve sustainable economic growth.

The Washington-based institution proposed five types of taxes for the 20-year-old Gulf economic, defence and political group, including taxes on individual income, corporate profits, consumption, fees and value addition.

"GCC states should start introducing such taxes which will expand non-oil revenues," the IMF said in a report entitled 'a strategy for sustainable development and economic stability in the GCC'.

"GCC governments should also work to attract more foreign capital, mainly direct investment, which plays a vital role in the domestic economy in a world heading fast towards economic globalisaton."

The report, which was discussed by the GCC finance ministers at their Manama talks this week, is the second call by the IMF on regional governments to end their hesitancy and begin levying taxes.

The six members generally do not impose income taxes but have introduced fees on key services to ease their financial burden and develop non-oil revenues.

"GCC states should step up reforms, lower subsidies, upgrade the financial system and the stock market and allow foreigners to fully own projects," the IMF said.

It warned that volatile oil sales would aggravate the unemployment problem in the GCC given the rapid growth in the population, estimated at 3.5 per cent.

Oil exports account for more than two thirds of the national income of GCC states.

The six members, which control nearly 45 per cent of the world's oil, earned more than $150 billion in 1980 but the income dived to only $56 billion in 1998 when crude prices collapsed below $10 a barrel. The earnings recovered to around $85 billion in 1999 and surged to $135 billion last year after prices shot to around $27.

The increase turned a $16 deficit into a real surplus of around $13.5 billion and enabled Gulf governments to replenish their receding cash reserves to more than $40 billion.

But experts caution such positive developments are temporary as they were a result of higher oil prices.

"The surplus does not reflect a success in economic and financial policies as it was a result of strong oil prices," Saudi economist Ihsan Bu Huleika said.

"GCC states should attain balanced budgets and spur growth in their economies through serious reforms rather than better oil market conditions... I think it is time for them to introduce taxes and give way to the private sector to spearhead the development process," he added.