Value Added Tax
GCC states depend largely on hydrocarbon revenues which account for 50%—70% of the revenues. The drastic fall in energy prices in the recent past has encouraged GCC governments to introduce fiscal reforms to reduce the budget deficits and diversify the revenue streams beyond the traditional oil and gas sector. Hence, the GCC governments have decided to introduce VAT from 1st January 2018 to achieve the following key objectives:
- To increase sources of revenue from Non-Oil Sector
- To meet the social service requirements (e.g. infrastructure, medical, military, housing)
- To initiate Tax reforms as part of the fiscal policy
The Finance Ministers of the six GCC member-states approved a Value Added Tax (VAT) treaty in 2016. VAT, an indirect tax on consumption, is expected to be levied on most goods and services across the GCC at an initial rate of 5%. A “Unified VAT Agreement for the Cooperation Council for the Arab States of the Gulf” has been signed by each state that sets out the underlying principles of VAT laws for the six GCC countries: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates (UAE). Following unified agreement release, each member state will issue VAT Legislation and Implementing Regulations.