The Gulf countries are collectively studying the possibility of implementing value added tax (VAT) by 2015, according to Ernst & Young (E&Y).
The global consultant also said lowering of corporate tax rates by governments in Middle East and North Africa (Mena) is expected to increase the flow of foreign direct investment (FDI).
“The GCC (Gulf Co-operation Council) countries are collectively studying the possibility of VAT implementation by 2015 and this determination will influence the tax landscape of the entire region,” Sherif el-Kilany, Mena tax leader, E&Y, said.
One of the factors defining the fiscal landscape in the Mena region is the low corporate tax rate prevalent in many countries, with the effective corporate tax rate in Qatar at 10%, Oman 12%; Iraq and Kuwait 15%, and Saudi at 20%, he said.
As a consequence of lower tax collections, tax authorities in a number of countries in the Mena region are actively considering and implementing changes in tax policy and compliance requirements that are likely to have “significant” effect on local taxation environments, E&Y said.
“However, the need for effective taxation is creating an increasingly challenging tax environment in many countries, with more stringent tax compliance measures being introduced by tax authorities,” according to el-Kilany.
He said one of the most important trends in the GCC and Mena regions has been the increase in FDI (foreign direct investment) as a result of attractive business opportunities and favourable lower taxation rates.
“This is particularly so in the GCC, where between 2003 and 2011, the region attracted over 79% of FDI projects in Mena, comprising over 62% of the value of business projects and over 65% of the jobs created,” E&Y said, adding “the GCC trio (the UAE, Saudi Arabia and Qatar) maintain the lead, both in terms of numbers and investor expectations.” Investment opportunities are highly attractive in these countries as international investors benefit from larger internal markets, more accessible customers, a stable political environment and enhanced transport and logistics infrastructure, it said.
“The region has witnessed fundamental shifts in the direction of taxation laws to accommodate further FDI. This is done by facilitating and easing processes pertaining to application and registration. Additionally, the region is set to witness a rise in infrastructure development resulting in higher FDI activity within the GCC specifically, and Mena in general,” el-Kilany said.
Highlighting that Qatar has witnessed significant changes recently, E&Y said, as of February 2013, the country holds 53 effective double-taxation avoidance agreements, with a further 28 not yet in force. Presently, there are no anticipated amendments to the tax laws in Qatar, whilst the established laws take full effect.