A recent report by S&P Global Ratings showed that tax rates are considered low in the Gulf countries; Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE, following the plunge in oil prices in mid-2014.
Tax rates will likely impact policymakers’ decisions in the future regarding value-added tax (VAT) rate increases, with a potential rise to 10% in some GCC countries, S&P report added.
“With a VAT increase of this magnitude, the effective tax rate would likely rise to 5%-6%. Government revenues would likely advance by an additional 1.7%-2.0% of GDP on average,” the report said.
VAT rates are projected to remain relatively low in the next few years, as some GCC governments have experienced some fiscal deterioration.
GCC states are currently considering a raft of measures to diversify and increase their tax revenues.
S&P expects that most of the region will introduce an important initial measure; a 5% VAT rate in 2018-2019.
“However, in our view, GCC countries’ economic and social models will constrain the implementation of further substantial tax reforms,” S&P said.
It added: “We project the regional VAT rollout would push up government revenues on average by the equivalent of 1.7%-2.0% of GDP.”