The International Monetary Fund (IMF) chief on Sunday called for increasing tax revenues in the GCC and wider Mena region, despite making some good progress in the tax base by the regional countries.
Kristalina Georgieva, managing director of IMF, said the average tax-to-GDP ratio is less than half of what could potentially be collected and called for phasing out inefficient tax exemptions.
Several regional countries, including the UAE, have introduced taxes in the past few years in order to boost revenues away from the petrodollars and create a more sustainable source of income for the economies.
After value-added tax (VAT) on consumer goods and services, and excise tax on tobacco and energy and soft drinks, the UAE is set to levy corporate income tax from this year at nine per cent. Meanwhile, Bahrain and Saudi Arabia have also raised substantial revenue by introducing value-added taxes.
“If we are to invest in a more resilient future, we will need to further strengthen tax policy and administration. Many countries in the region have made good progress in expanding their tax capacity. And yet, the average tax-to-GDP ratio, excluding hydrocarbon-related revenue, remains at about 11 per cent — less than half of what could potentially be collected,” Georgieva said while speaking at the 7th Arab Fiscal Forum which is taking place alongside the World Government Summit in Dubai.
The three-day summit will see the participation of heads of state, leaders, economists and global CEOs addressing the mega event. These include Twitter and Tesla CEO Elon Musk, Georgia’s prime minister Irakli Garibashvili, Rwanda's prime minister Édouard Ngirente, Kuwait's prime minister Sheikh Ahmad Nawaf Al Ahmad Al Sabah, and Egypt president Abdel Fattah Al-Sisi, among others.
“This can be increased by improving tax policy design and phasing out inefficient tax exemptions,” she added.
In addition to the IMF chief, the three-day Summit in Dubai will see the participation of many top leaders, heads of state, thinkers and economists who will share their thoughts.
She also stressed the importance of modernising tax administration and using digital tools to boost revenues.
Inflation in GCC
The IMF has projected that growth in Mena is also expected to drop from 5.4 per cent in 2022 to 3.2 per cent this year, in line with the slowdown in the global economy as Opec+ production cuts would reduce overall revenue for the oil exporters.
It expects inflation in the Mena region to surpass 10 per cent — above the global average, but inflation in the Gulf Cooperation Council (GCC) countries to remain contained.
“We expect inflation to gradually decline as commodity prices settle and tighter monetary and fiscal policies have their intended effect. But for the region too, we worry about risks. Russia’s war in Ukraine and climate disasters could worsen food shortages for the most vulnerable,” she added.
Dh2.75 trillion financing needs
The IMF chief asked the regional countries to think beyond reducing greenhouse gas emissions and make long-term plans, and increase investments to make the economies more climate-resilient as the region – spanning from North Africa to Central Asia – is warming at twice the speed of the rest of the world.
“Governments in the region have identified multi-year financing needs of over $750 billion (Dh2.752 trillion) for these actions. Enabling the environment for private climate finance through the right policies and financial solutions is key to meeting these needs,” she said.
The IMF chief praised the Arab world for strong collaboration within the region.
“Over the past five years, GCC countries have provided $54 billion (Dh198 billion) in financing for budget and balance-of-payments needs. They have also supported low-income countries, and fragile and conflict-affected states in the region, through debt reduction and food security support,” she added.
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