Possibility of new taxes in Qatar sparks debate

Photo for illustrative purposes only.

GotCredit / Flickr

Photo for illustrative purposes only.

Qatar is the least likely of its regional peers to begin levying new taxes on residents and businesses, representatives from several major accounting firms have said.

The prediction was made during a meeting in Dubai this month of the Institute of Chartered Accountants in England and Wales, and comes as Qatar’s government explores new revenue sources amid persistently low prices for its oil and gas.

Speakers at the conference also suggested a value-added tax (VAT) of between 3 and 5 percent could be introduced “in the near future” in Oman and the UAE. With the rest of the GCC countries in various stages of preparation, other governments could follow.

However, the panelists – which included executives from global consulting firms KPMG and PwC – said “Qatar is unlikely to introduce taxes at this stage.”

Vodafone Qatar CEO Kyle Whitehill

Vodafone Qatar

Vodafone Qatar CEO Kyle Whitehill

Nevertheless, the prospect of new government levies has already prompted the CEO of Qatar’s second-largest telecom firm to warn that any new taxes could have a “destabilizing” effect on the country’s economy and turn expats off from moving to the Gulf state.

While the suggestion has the support of many economists and even some residents, Vodafone Qatar CEO Kyle Whitehill said it would be problematic for a country that already has a high cost of living.

Speaking to Bloomberg Businessweek Middle East, Whitehill said:

“The big implication is around the cost of the employee and equipment. It’s such a high-cost country that attracting an employee to come work and live here hugely inflates the cost of the employee versus any other country.”

Whitehill told the magazine that many expats are drawn to Qatar because of its tax-free status, but are taken aback by the price of daily items once they arrive.

“You go to get a coffee in Dubai or Doha and you have to reach for your platinum express card,” he said. “A (value-added tax) on top of that could have a destabilizing effect.”

What’s happening

Dr. Saleh bin Mohammed Al Nabit - Minister of Development Planning and Statistics

Hilalyazbek/Wikicommons

Dr. Saleh bin Mohammed Al Nabit – Minister of Development Planning and Statistics

While the government has not officially said that new taxes are being considered, there are signs that the concept is at least being debated.

Last week, Saleh bin Mohammed Al Nabit, who leads Qatar’s Ministry of Development Planning and Statistics, said it had become “urgent” to both reform the country’s generous subsidies as well as develop the tax system to support “the revenue side of the budget.”

Al Nabit did not say whether he was referring to an increase in Qatar’s current 10 percent corporate tax rate, or the introduction of a new sales or personal income tax.

Some residents have said they are open to the idea, providing the government is transparent about its finances:

Others were less enthusiastic and predicted some expats would leave Qatar if a new tax hit their personal finances hard, while some worried that companies would have layoffs to deal with the added costs.

GCC debate

After discussing it for years, GCC governments reportedly resuscitated the idea of simultaneously introducing a value-added tax (VAT) across all six countries.

While no timeline was attached to this latest initiative, previous predictions that a value-added tax would start being applied to transactions in the region by 2012 or, more recently, 2015, have failed to materialize.

For illustrative purposes only.

Michael Allen Smith / Flickr

For illustrative purposes only.

Besides being the type of tax that’s least likely to harm the Gulf region’s brand as a tax-free haven for expats, consulting firm Deloitte said earlier this year that VATs are popular among governments because they are considered to be more efficient, cheaper to operate, less open to fraud and less likely to distort investment decisions by businesses than other forms of taxes.

The company added that Gulf states want to coordinate their actions out of fear that the first countries to introduce a VAT would be at an economic disadvantage, because consumers and businesses would turn to neighboring countries for their purchases.

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