By going back on VAT agreement, Qatar is only hurting itself
In early January, four Arab Gulf countries are expected to implement the value added tax (VAT). The UAE and Saudi Arabia were the first to approve VAT implementation regulations last September, while Oman’s Consultative Assembly approved them November 15. Kuwait’s VAT bill is still under consideration in its National Assembly.
While five Gulf Cooperation Council countries have remained committed to introducing the VAT, Qatar has announced that it will not implement the tax, despite having signed onto the GCC Unified VAT Agreement.
By reneging on the accord, the Qatari regime is once again pushing its country into being the odd man out in a united region, where cooperation on economic matters has always been regarded as a priority.
Qatar’s latest attempt to disrupt the implementation of a GCC agreement comes as no surprise given its policies over the last few years. It is the third common agreement that Qatar has failed to uphold in that time.
On November 23, 2013, GCC countries signed the Riyadh Agreement, a document stipulating that members would avoid interfering in the internal affairs of other Gulf countries and barring the provision of financial or political support to “deviant” groups. The agreement specifically names the Muslim Brotherhood and Yemeni opposition factions as groups not to support. Doha, of course, flatly disregarded the agreement and failed to live up to its commitments.
A second agreement, dated November 16, 2014, called on signatories to support Egypt’s stability and avoid using the Doha-based Al Jazeera media network as a platform for challenging the Egyptian government. Qatar, however, acted as if the recommendations of the second agreement never existed
The implementation of the VAT is in line with a recommendation by the International Monetary Fund for Gulf states to impose revenue-raising measures, including excise and value added taxes, to help adjust to lower crude oil prices, which have slowed regional growth. The GCC countries have already agreed to implement selective taxes on tobacco as well as soft drinks and energy drinks this year.
Though it previously approved the VAT agreement, Qatar is now claiming it does not want to further burden consumers. Such a claim not only underscores Qatar’s duplicity but shows that the country is trying to emotionally manipulate people in the Gulf.
According to economy experts, the VAT is expected to generate significant outcomes, resulting in greater stability for Gulf economies and increased stability of state budgets. It also builds on the successes of others: Since 1967, when the first VAT directive was adopted in Europe, the model has proven to be somewhat successful, with it playing a key role in the European Single Market.
The system was designed to do away with turnover taxes, which can distort competition and hinder the free movement of goods, and to remove fiscal checks and formalities at internal borders. Over the years, VAT has proved to be a major and growing source of revenue for the European Union, raising more than $1.18 trillion in 2015, equal to 7% of EU GDP. One of the European Union’s own resources is also based on VAT, which, as a consumption tax, is one of the most growth-friendly forms of taxation.
Qatar’s latest move does not emanate from its concerns about consumers’ well-being given that the tax rate is relatively low (5%). It is a futile attempt to hinder the implementation of the VAT, not a well-thought-out economic decision.
Now, who will be the biggest loser?
Eventually, Doha will feel the economic losses. The gap between Qatar’s financial systems and the rest of the Gulf’s will continue to grow, with Doha lagging sorely behind in enacting much-needed financial reforms. In the meantime, other Gulf countries will move forward.