GCC preparing for VAT and excise tax . . .

Ernst & Young Qatar (EY) and PricewaterhouseCoopers (PwC), two leading audit and consulting firms, have advised businesses to start planning in advance for VAT and Excise Duty in the GCC.  Regional firms were advised to ensure systems are in place for the new taxes such as these but possibly for more to come, the consultancies have urged in a new report.

All GCC finance ministers sat at an extraordinary meeting on June 16 in Jeddah and approved in principle VAT and excise tax treaties for the first time ever.  The agreement was upon the basic guidelines including the items that will be exempt from VAT such as food and healthcare.

This will definitely be detailed by a joint GCC committee’s recommendations by the end of summer and put for approval before by year end.  The excise tax will therefore be collected as of January 1, 2017, while VAT is expected by January 1, 2018.

The implementation still more than 18 months away, businesses should already be planning for VAT’s impact on their operational models.

Although the general configuration of the new tax is already known, the final form of the VAT is still being developed.  All GCC member countries should have VAT in place by the end of 2018, all local media reported.

In Qatar, a government report has warned of additional taxes, as a way to rein in some of the spending as well as prepare to run deficits for the next three years.

The Ministry of Development Planning and Statistics (MDPS) confirmed for the first time, that Qatar will introduce a 5% value-added tax (VAT) in 2018.  Read below excerpts of the MDPS reproduced herewith.

During its semi-annual economic update, the MDPS stated that this was part of a GCC-wide agreement and warned that additional taxes – including on certain food and beverages will be imposed.   Tobacco, fast foods and soft drinks and all consumables deemed harmful to an individual will not escape taxation.  These measures are bound to impact the currently low level inflation.

This year’s budget deficit according to the BDPS could be more than the last December projected figure of QR46.5 billion and that despite government austerity that coupled with a slower than anticipated oil price recovery, have impelled the government to cut spending, have resulted in government-funded organisations expat employees redundancies.

Qatar budget should break even this year if oil prices reached $61.50 a barrel, but currently these are around $50 a barrel.

Qatar Economic Outlook 2016–2018 .

The Ministry of Development Planning and Statistics (MDPS) released on 19 June 2016, the Qatar Economic Outlook 2016-2018.  While the Outlook sees real gross domestic product (GDP) growth strengthening in 2016, it anticipates a contraction in nominal income and a decline in the fiscal and current account surpluses. In 2016 real growth of 3.9% is expected, driven by gathering expansion of the non-hydrocarbon economy and a boost from the start-up of the Barzan gas project. However, real GDP growth is set to taper in 2017 and 2018 as activity in the non-hydrocarbon sector starts to moderate and the added production from Barzan falls out of the equation.  With oil prices forecast to remain low in  2016, a reduction of 2.9% in nominal GDP is projected for 2016. In 2017 and 2018 nominal GDP is foreseen to resume growth at 9.0% and 9.1% respectively.

Inflation in 2016 is forecast to moderately pick up in 2016 to 3.4% following rapid acceleration observed in January–April. The recent hikes to petrol prices in January of this year, as well as the removal of water and electricity subsidies in late 2015, will push up domestic prices. A slight pick-up in global commodity prices, and an anticipated softening of the U.S. dollar (to which the Qatari riyal is pegged) will push imported inflation up further in 2017and 2018.

Given significantly lower oil prices and an erosion of hydrocarbon revenues, a fiscal deficit is projected for calendar year 2016, for the first time in 15 years, at just under 8% of nominal GDP. However, if the recent oil price rally persists, investment income will be shielded and the fiscal deficit be lower than anticipated. Breakeven oil prices for the fiscal balance are estimated at $61.5 per barrel for 2016, and above $65 for both 2017 and 2018.

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