PHOTO
11 April 2017
Qatar will likely miss a Gulf-wide target of introducing value-added tax (VAT) from January 2018 because the gas exporter is more concerned with building infrastructure ahead of hosting the 2022 World Cup, a Qatari-based economist told Zawya.
A 5 percent VAT had been widely previewed to be introduced simultaneously across the six members of the Gulf Cooperation Council (GCC) from next year, and Younis Al Khouri, under-secretary at the UAE’s finance ministry in February, reiterated this timeframe to Zawya in a February interview, but tax experts seem increasingly sceptical.
Alexis Antoniades, professor of economics at Qatar’s Georgetown University and a former assistant economist at the New York Federal Reserve Bank who has knowledge about VAT progress in Qatar, said he concurred with such doubts.
“I think the official view in Qatar is that we have agreed to launch VAT on January 1, 2018 across the GCC. The view of policy makers and stakeholders is that we are proceeding according to plan… But in the implementation and if you are to talk to the technocrats and the private sector, I think the consensus is very different,” Antoniades told Zawya.
“I don’t think now we are where we would like to be in terms of progress made to the VAT. I think the government would like to implement it, but I think it is impossible to implement at the beginning of 2018.”
Qatar, the world's biggest liquefied natural gas exporter and OPEC member, was negatively impacted by the sharp decline in oil prices from mid-2014 but has largely continued with its multibillion dollar infrastructure programme ahead of hosting the 2022 World Cup.
“They know a lot of projects will be for the benefit of the country, such as the new railway system, the transportation network and of course all of that takes a big chunk of their spending,” Antoniades said.
“Qatar now is saying let us recognise that budgets have been cut in the government and the private sector… Giving a little bit of time to the government and the private sector to set up the VAT system might not be a bad thing.”
Qatar will eventually implement VAT and it is a matter of “when” rather than “if”, said Antoniades, but officials’ recent remarks suggest the country could adopt VAT after other GCC states – either later in 2018 or 2019.
Salem Abdulla Al Shamsi, a member in the UAE’s Federal National Council, told Zawya Projects last month that VAT implementation could be delayed beyond January 1, 2018.
VAT rate on the rise?
Antoniades said the introduction of tax is important for the economic advancement of the oil-rich Gulf Arab powers, although the current rate of 5 percent is unlikely to generate significant revenues for the likes of Qatar and so will likely increase over time.
Qatar is expected to run a budget deficit of 7.9 percent this year and 4.2 percent in 2018, Reuters reported. A report by the International Monterey Fund said Qatar could generate revenue of about 1.5 percent of its non –hydrocarbon GDP from a 5 percent VAT rate, Gulf Times newspaper reported on Tuesday.
“What I can say is it (Qatar VAT revenue) won’t be much. At first the cost of implementing the VAT system will outweigh the benefits because of the huge compliance cost (to) companies, of setting (up) the tax bureaus, hiring people, changing regulations… Those are huge costs and I think the revenue will be very small,” said Antoniades.
“Eventually I expect VAT rate to go up so that revenue will be substantial. I am not saying it will go up in the next year or two but in 5-10 years it could. In advanced economies it is 16-22 percent, so you start at 5 (percent) but in the long run it will go up,” he added.
Saudi Arabia's finance minister Mohammed Al Jadaan on Sunday said the kingdom’s VAT rate will not be raised above 5 percent before year 2020.
UAE official Khouri said in an interview with Zawya in February that his country would raise around 12 billion dirhams ($3.3 billion) in VAT revenue in the first year, which is equivalent to 0.9 percent of the UAE's 2015 gross domestic product. He said the government is not currently considering increasing the rate and would not raise it without economic and social studies.
The UAE’s VAT introduction plans seems well advanced. It is hosting workshops with companies from March to May to explain the VAT rules, with a VAT law expected to be issued by the end of July.
In contrast, Qatar is still in the early stages, Antoniades said. It has yet to establish tax bureaus, which will be a prelude to deciding the VAT regulatory framework and hosting workshops.
“Qatar’s official view is that they will do it, may be towards the end of 2018… This is the official view, whether they will succeed in doing it or not, I have my question marks but there is plenty of time ahead,” he added.
For Zawya’s Special Coverage on the introduction of VAT in the GCC click here.
© Zawya 2017
Qatar will likely miss a Gulf-wide target of introducing value-added tax (VAT) from January 2018 because the gas exporter is more concerned with building infrastructure ahead of hosting the 2022 World Cup, a Qatari-based economist told Zawya.
A 5 percent VAT had been widely previewed to be introduced simultaneously across the six members of the Gulf Cooperation Council (GCC) from next year, and Younis Al Khouri, under-secretary at the UAE’s finance ministry in February, reiterated this timeframe to Zawya in a February interview, but tax experts seem increasingly sceptical.
Alexis Antoniades, professor of economics at Qatar’s Georgetown University and a former assistant economist at the New York Federal Reserve Bank who has knowledge about VAT progress in Qatar, said he concurred with such doubts.
“I think the official view in Qatar is that we have agreed to launch VAT on January 1, 2018 across the GCC. The view of policy makers and stakeholders is that we are proceeding according to plan… But in the implementation and if you are to talk to the technocrats and the private sector, I think the consensus is very different,” Antoniades told Zawya.
“I don’t think now we are where we would like to be in terms of progress made to the VAT. I think the government would like to implement it, but I think it is impossible to implement at the beginning of 2018.”
Qatar, the world's biggest liquefied natural gas exporter and OPEC member, was negatively impacted by the sharp decline in oil prices from mid-2014 but has largely continued with its multibillion dollar infrastructure programme ahead of hosting the 2022 World Cup.
“They know a lot of projects will be for the benefit of the country, such as the new railway system, the transportation network and of course all of that takes a big chunk of their spending,” Antoniades said.
“Qatar now is saying let us recognise that budgets have been cut in the government and the private sector… Giving a little bit of time to the government and the private sector to set up the VAT system might not be a bad thing.”
Qatar will eventually implement VAT and it is a matter of “when” rather than “if”, said Antoniades, but officials’ recent remarks suggest the country could adopt VAT after other GCC states – either later in 2018 or 2019.
Salem Abdulla Al Shamsi, a member in the UAE’s Federal National Council, told Zawya Projects last month that VAT implementation could be delayed beyond January 1, 2018.
VAT rate on the rise?
Antoniades said the introduction of tax is important for the economic advancement of the oil-rich Gulf Arab powers, although the current rate of 5 percent is unlikely to generate significant revenues for the likes of Qatar and so will likely increase over time.
Qatar is expected to run a budget deficit of 7.9 percent this year and 4.2 percent in 2018, Reuters reported. A report by the International Monterey Fund said Qatar could generate revenue of about 1.5 percent of its non –hydrocarbon GDP from a 5 percent VAT rate, Gulf Times newspaper reported on Tuesday.
“What I can say is it (Qatar VAT revenue) won’t be much. At first the cost of implementing the VAT system will outweigh the benefits because of the huge compliance cost (to) companies, of setting (up) the tax bureaus, hiring people, changing regulations… Those are huge costs and I think the revenue will be very small,” said Antoniades.
“Eventually I expect VAT rate to go up so that revenue will be substantial. I am not saying it will go up in the next year or two but in 5-10 years it could. In advanced economies it is 16-22 percent, so you start at 5 (percent) but in the long run it will go up,” he added.
Saudi Arabia's finance minister Mohammed Al Jadaan on Sunday said the kingdom’s VAT rate will not be raised above 5 percent before year 2020.
UAE official Khouri said in an interview with Zawya in February that his country would raise around 12 billion dirhams ($3.3 billion) in VAT revenue in the first year, which is equivalent to 0.9 percent of the UAE's 2015 gross domestic product. He said the government is not currently considering increasing the rate and would not raise it without economic and social studies.
The UAE’s VAT introduction plans seems well advanced. It is hosting workshops with companies from March to May to explain the VAT rules, with a VAT law expected to be issued by the end of July.
In contrast, Qatar is still in the early stages, Antoniades said. It has yet to establish tax bureaus, which will be a prelude to deciding the VAT regulatory framework and hosting workshops.
“Qatar’s official view is that they will do it, may be towards the end of 2018… This is the official view, whether they will succeed in doing it or not, I have my question marks but there is plenty of time ahead,” he added.
For Zawya’s Special Coverage on the introduction of VAT in the GCC click here.
© Zawya 2017
