IMF Suggests New Tax Policies to Boost GCC Economies

The UAE and its neighboring The Cooperation Council for the Arab States of the Gulf (GCC) nations are exploring ways to diversify their revenue streams and reduce dependency on oil revenues. The International Monetary Fund (IMF), in its latest report, proposed introducing new tax measures such as property taxes, luxury taxes, and environmental levies. These initiatives aim to support economic diversification and revenue mobilization across the Gulf region.

Broadening the Tax Base

The GCC countries have already taken significant steps to expand their tax frameworks. Measures such as value-added tax (VAT), excise taxes, and corporate income tax have been introduced to reduce reliance on hydrocarbon revenues.

Currently:

• VAT is implemented in Bahrain, Oman, Saudi Arabia, and the UAE.
• Excise taxes are applied in all GCC countries except Kuwait.
• Oman has announced plans to introduce an income tax, becoming the first GCC nation to take such a step.
• Several GCC nations have also adopted a 15% minimum domestic top-up tax for multinational corporations.

Challenges in Implementation

The IMF highlighted that introducing taxes is a complex process, requiring robust legal and regulatory frameworks. Gulf countries, relatively new to taxation, are working to modernize their tax collection systems and ensure compliance. The IMF stressed the need for simplifying tax processes to improve collection efficiency.

The Gulf region still faces a significant gap in mobilizing tax revenues compared to its potential. Bridging this gap is critical for reducing dependency on hydrocarbons and achieving macroeconomic stability.

Economic Resilience of the GCC

Despite global uncertainties, the GCC economies remain resilient, with favorable economic forecasts. The IMF noted:

• Non-hydrocarbon sectors have driven growth, supported by reforms, tourism recovery, and capital inflows.
• In the UAE, real GDP growth reached 3.6%, driven by strong performance in non-hydrocarbon activities, including tourism and infrastructure investments.

Minimal Impact from Regional Conflicts

The ongoing conflicts in the Middle East have had limited spillover effects on the GCC economies. Trade, investment, and tourism flows have largely remained stable. Daily exports from major GCC ports have rebounded, albeit at slightly lower levels than historical averages.

Future Outlook

The GCC’s economic outlook remains optimistic, with continued growth in both hydrocarbon and non-hydrocarbon sectors. Inflation has stabilized, and external reserves provide a strong buffer. The IMF’s recommendations on tax policy reforms are expected to further strengthen the region’s fiscal health and economic resilience.

As GCC nations push forward with their diversification strategies, these tax measures will play a crucial role in sustaining long-term growth and stability. So partner with N R Doshi for Expert Tax Guidance in the GCC as we provide tailored solutions to help your business adapt and thrive: