Wondering what the potential introduction of the VAT tax in Qatar could look like? Doha News speaks to experts to find out.
In 2017, the countries that make up the Gulf Cooperation Council, namely Qatar, Saudi Arabia, United Arab Emirates, Bahrain, Kuwait, Oman, signed a framework that would guide the implementation of the Value-added Tax.
However, with the then-blockade already affecting Qatar’s economy negatively, Doha could not at the time afford to see a further economic downturn with the addition of the VAT, according to Adnane Allouaji, Analyst at The Economist Intelligence Unit.
In Doha, authorities set the date for 2021, however no announcements have yet been made to confirm the scheduled rollout.
While legislation has been drafted, it is still being debated and discussed by authorities, with experts suggesting VAT will be imposed in late 2021 or early 2022.
“It’s a question of if, not when,” said Ahmed Eldessouky, Partner at Ernst & Young told Doha News.
“However, even after legislation about the tax is pushed, it would take time to make business compliant and create the infrastructure to be implemented,” he added.
There are three different rates of the VAT tax that can be implemented under the framework.
The first is the introductory rate of 5% – the lowest rate worldwide – to allow for the VAT to settle into the economy, though Saudi Arabia increased its rate to 15% in July 2020 on all goods.
“There is scope to increase the VAT rate later down the line, though this is not expected in the immediate future as authorities will not want to hit the pockets of the state’s residents,” said Allouaji.
Certain sectors such as healthcare and education will most likely have a zero VAT rate of tax – also known as the zero-rated tax. This means there should be no impact to consumers of these services.
Meanwhile, other services may be exempt from the tax, such as specific financial services. This could have an impact in terms of how financial institutions look to pass on the cost of VAT to consumers.
News of the introduction to the Gulf region, where expats have flocked to for years to enjoy tax relief, has raised serious concerns for residents.
Experts believe the early impact of the VAT is expected to be negative. This is due to an increase in the rate of inflation and a likely change in spending habits by concerned consumers, according to Aamer Bhatti, Partner at EY.
However, given Qatar’s economic outlook, this is likely to pass smoothly, he suggested.
“In the long term, the VAT can in fact be positive for consumers as more products and options are also introduced into the market and there are more opportunities for discounts and promotions to attract consumer spending,” he said.
However, consumers are also worried about whether this would open doors to potential General Income Tax.
“General Income Tax in an expat-heavy country such as Qatar is unlikely,” Bhatti said. “This is because the tax-free income in Qatar and other Gulf states are seen as an incentive by expatriates looking to move to the region.”