AS OIL REVENUE DRIES UP, GULF STATES PONDER INTRODUCTION OF TAXES!
AS OIL REVENUE DRIES UP, GULF STATES PONDER INTRODUCTION OF TAXES!
By:
Nurudeen Dauda
June 7, 2016
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Gulf Cooperation Council group of countries--Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Bahrain and Oman--have agreed to introduce a value-added tax across the region in 2018. Gulf States have spent hundreds of billions of their “petrodollars”in recent decades building economies virtually from scratch. Lacking enough people and know-how to achieve their ambitions, they have relied on millions of foreign workers lured by, among other things, minimal taxation--and in the case of Dubai, no income tax at all. Now, with the plunge in crude prices, governments from Riyadh to Muscat are reassessing their light-touch tax regimes as they search of fresh sources of income to pay for trophy projects and meet the demands of burgeoning youthful populations for better housing, hospitals and schools.
After toying with the idea for nearly a decade, six members of the Gulf Cooperation Council group of countries--Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Bahrain and Oman--have agreed to introduce a value-added tax across the region in 2018, Younis Al Khoori, the U.A.E.'s undersecretary of finance, told The Wall Street Journal. Mr. Khoori said a VAT in the range of 3-5% would "hardly be noticeable" to consumers because food purchases would be exempted from the charge. Across the region; there is a growing realization that widening budget deficits have brought an end to an era of oil-enriched budget surpluses. Oman is set to raise corporate income taxes and Kuwait is drafting new tax proposals. Tax revenues in the U.A.E. and other Arab Gulf countries as a percentage of their gross domestic product are still among the world's lowest, according to World Bank figures.
Gulf budgets have been hit as oil prices declined from above US$115 per barrel in June 2014 to less than $30 per barrel in January this year. This has led to Gulf countries running double-digit deficits. Of the Gulf States, only Kuwait and Qatar ran deficits below 10 per cent of GDP last year. Gulf States are in negotiations over the terms of a region-wide introduction of VAT, which a UAE minister said would probably be introduced in “two to three years”. The tax would include exemptions for basic food items, education and health care. The UAE would need to introduce new legislation to levy the tax, which would not be collected until 18 months after the passage of the new law. While most analysts agree that the Gulf should proceed with taxes and slowing public spending, some have previ¬ously pointed out that cutting capital spending could hinder the country’s diversification efforts.
The Gulf States are planning to introduce sales tax by 2018, a senior official said on Tuesday, as the decline in oil prices forces the six-member group to seek new revenues to cover gaping fiscal deficits. The Gulf Cooperation Council states, all of whom have been hit by declining revenues as oil prices fell two-thirds, have been working on a plan to introduce valued added tax of about 5 per cent, excluding about 100 staple food items, as well as health and education costs. Obaid al-Tayer, the United Arab Emirates’ minister of state for financial affairs, said the GCC was expected to agree on a framework VAT agreement by June, with implementation starting from January 1, 2018, subject to agreement by GCC leaders. Mr Tayer said the authorities were working with the private sector to prepare the country ahead of implementation, but added that the “positives outweighed the negatives.”
The precipitous and sustained slide in oil prices has put regional budgets under severe pressure, persuading governments to take other unprecedented measures, such as reducing subsidies on fuel and utilities. Mr Tayer, while welcoming the IMF’s recommendations, sought to assuage concerns that the UAE would abandon its tax-free credentials. He said the federation was in the “initial stages” of studying the social and economic impact of corporation tax, with no law being drafted to introduce such a tax. Implementing VAT was “the priority,” he said, and he added that the UAE was not considering income tax.
The energy crisis has hit many countries including the biggest OPEC member, Saudi Arabia. Saudi Arabia is set to secure $10bllion loan from International banks as the Kingdom seeks to address a budget shortfall caused by the fall in oil prices. Saudi Arabia increased the loan size from an initial target range of between $6billion to $8billion after receiving demand from a wide range of global banks. The world's or OPEC leading oil producer announced a record $98bn budget deficit in 2016 citing rock-bottom global petroleum prices. The budget deficit is the “highest” in the history of Saudi Arabia, but was not as big as some expected. The International Monetary Fund had projected a deficit of $130bn.
Saudi Arabia has raised domestic energy prices by as much as 40% for fuel and 50% for Gas. Saudi Arabia has increased fuel price to- 40%, Bahrain- 56%, Oman- 33%, Qatar-30%, UAE- 10%, and Venezuela- 6,000%. Almost all the oil producing countries are not finding it easy all over the world, but the Nigeria’s case is different or worst because we have a “monoculture economy”, we import almost 100% of our refined petrol until in the last few weeks, we benefited with little or nothing during good crude oil prices . At it “height” crude oil price was above $100 per barrel for four (4) years (2009-2014). Crude oil price at the international market collapsed from $115 per barrel in 2014 to as low as $27 per barrel in January, 2016, about $88 loss per barrel. However, the price is now between $49-$50 per barrel as at yesterday.
Bahrain witnessed the “first” increase in pump price with 56% in “33years”, in January, 2016. Oman increases pump price with 33% which “first” in “17years” in January, 2016. Venezuela increased pump price with 6,000% the “first” in “22 years” in February, 2016. UAE’s pump price increment was in April, 2016.Qatar in January, 2016.
It is “logical” rather than “ironic” that when fuel prices in the “none” oil producing countries have reduced due to “low” crude oil prices in the “World market” it has on the other hand, increased among the oil producing countries. The logic is that If crude oil price is “high” oil producing countries will have “Surplus incomes” due to “huge receives” while none oil producing countries will have “Deficits” due to paying “huge” prices for crude oil and “vice versa”. While none oil producing countries are “rejoicing” with “low” oil prices the oil producing countries are faced with difficulties. Hey is economics not magic!
May God bless Nigeria!