Browsing 'taxes' News

tWo pInK pOSsuMs/Flickr

Photo for illustrative purposes only.

The introduction of new “selective taxes” on fast food, soda, tobacco, alcohol and certain luxury items in Qatar has been pushed back several months.

According to a new report from the International Monetary Fund (IMF), these taxes will now be rolled out sometime before the middle of next year.

It said:

“(Qatar’s) 2018 budget is expected to continue with gradual fiscal consolidation, focusing on the introduction of key tax policy and administration measures, including the introduction of a VAT and excises during the first half of 2018 and further rationalization of recurrent expenditures.”

A value-added tax, which will likely mostly affect businesses, had already been planned for 2018.

But sin taxes were previously expected to be rolled out this year.

The postponement comes amid a months-long Gulf dispute that has caused the price of food and transportation to rise in the country.

Managing well

Despite the increases, the IMF said this week that Qatar’s economy and financial markets are adjusting well to the “shock” of the rift with its neighbors.

It lauded the government’s efforts to avoid food shortages by diversifying sources of imports and boosting domestic production.

Al Meera

Turkish chicken

Following a recent visit to Qatar, the IMF also noted that key infrastructure projects appear to be on track since the country is sourcing construction materials elsewhere.

The vote of confidence from the IMF comes days after credit rating agency Fitch downgraded Qatar’s outlook amid fears of reduced government spending.

Earlier this week, Fitch put Qatar’s banks on Rating Watch Negative. It cited the “significant uncertainty around the banking system due to the boycott.”

It added that there doesn’t appear to be any resolution in sight.

QCB

Qatar Central Bank Governor Sheikh Abdulla Bin Saoud Al-Thani

For its part, Qatar’s Central Bank chief said the nation’s financial institutions are simply facing “abnormal conditions.”

Qatar’s banking system is strong and resilient, Sheikh Abdullah bin Saoud Al Thani said.

He added that the QCB believes its ratings will be back on solid footing in the “very near future.”

Thoughts?

Photo for illustrative purposes only.

Ziad Hunesh/Flickr

Photo for illustrative purposes only.

Note: This story has been corrected to reflect that few expats would leave Qatar in the event of a 5 percent VAT.

Only some 13 percent of expats recently surveyed said they would likely leave Qatar after it imposes a 5 percent value-added tax (VAT) in 2018.

Meanwhile, for Qataris, the potential reduction of state benefits proved to be more of a concern than a VAT.

The tax is expected to take effect as part of a GCC-wide agreement amid lower global oil prices and budget deficits.

Photo for illustrative purposes only.

Dave Dugdale / Flickr

Photo for illustrative purposes only.

The findings of the survey were presented yesterday by Qatar University’s Social and Economic Survey Research Institute (SESRI).

The lecture was titled, “Public Acceptance of Taxation in Qatar: How will citizens and expatriates respond to new revenue-generating measures?”

Survey results

To arrive at its findings, SESRI interviewed some 1,609 people, 812 of whom were Qatari and 797 were high and middle-income expats.

Some 13 percent said they would likely leave in the event of a 5 percent tax. Of those, 27 percent of Westerners were more likely to think about leaving.

Meanwhile, some 18 percent of Asian expats said they would consider leaving, while only 5 percent of Arabs expressed this sentiment.

However, if the VAT was increased to 10 percent, then 46 percent of Western expats said they would think about leaving Qatar.

According to one of the study’s researchers, a VAT would be preferable to income and corporate taxes. However, it would still raise the cost of living in Qatar.

“The higher they (expats) are attracted to stability and security, and lack of taxation, the more they’re likely to leave if these are not there anymore,” said researcher and senior policy analyst Michael Ewers.

“After the oil price crash, there has been a focus on cutting by the government, companies rightsizing their workforce and definitely fear among the expat community,” he added.

In addition to new taxes, the region is growing more unstable, making Qatar an even less attractive place to live for some.

Subsidies more important

Meanwhile, citizens of Qatar expressed more concern about subsidy cuts.

In January, SESRI asked Qataris to prioritize the state benefits they’d like to keep amid government efforts to reduce spending.

Photo for illustrative purposes only.

Ashghal

Photo for illustrative purposes only.

Free education, healthcare, water and electricity, and public sector employment were deemed high on the priority list.

Other benefits, such as free housing, land allotment, no taxation and social and marriage allowances were not considered as important.

“For them, they care more about keeping these benefits than they are with the introduction of a VAT,” Ewers said.

No transparency

Despite some efforts in the private sector to raise awareness about the impending VAT, Qatari officials have so far done little to convey its significance to the public.

During yesterday’s lecture, audience members said they were unaware about what kind of goods and services would be taxed.

Photo for illustrative purposes only.

Peter Kovessy / Doha News

Photo for illustrative purposes only.

Previously, analysts said the consumption tax is expected to exempt certain food items, the cost of education, healthcare and social services.

According to Ewers, many people are also in the dark about how Qatar’s finances were affected by lower oil prices.

“There’s a lack of knowledge on this among people in the public sector, and it’s unfortunate because they’re the ones who have a lot to lose,” he said.

An audience member suggested that a parliamentary body be formed to represent the population as the VAT is rolled out.

“It’s also important to raise the question of transparency. People need to know where their money is going and how will it be spent,” one person said.

Thoughts?

Photo for illustrative purposes only.

Antony Satheesh/Flickr

Photo for illustrative purposes only.

As Qatar prepares to run deficits for the next three years, a new government report has warned additional taxes – including on fast food – may be introduced.

In its semi-annual economic update yesterday, the Ministry of Development Planning and Statistics (MDPS) confirmed publicly for the first time that Qatar will introduce a 5 percent value-added tax (VAT) in 2018 as part of a GCC-wide agreement.

Additionally, the ministry said that the cost of water and electricity would be going up and become “closer to fair market value.”

Photo for illustrative purposes only.

Petras Gagilas/Flickr

Photo for illustrative purposes only.

Though rates increased last year, they are still heavily subsidized by the government.

The MDPS added:

“The possibility of new taxes, such as a ‘sin tax’ (on items deemed harmful to individuals, like tobacco, fast foods, and soft drinks), and the introduction of the VAT in 2018 will nudge up Qatar’s consumer price inflation.”

Collectively, the measures are expected to cause inflation to accelerate from 3.4 percent this year to 3.8 percent by 2018, the ministry said.

Three years of deficits

The MDPS said this year’s budget deficit will be even deeper than the QR46.5 billion projected in its last economic update, which was released in December and has since been removed from the ministry’s website.

The 2016 deficit is now expected to be 7.8 percent of nominal GDP, which is larger than the 4.8 percent predicted six months ago.

For illustrative purposes only.

TaxCredits.net/Flickr

For illustrative purposes only.

The MDPS also forecast that Qatar will continue to run deficits next year and in 2018, despite government belt-tightening.

This is largely due to oil prices recovering at a much slower rate than anticipated.

Lower revenues have also prompted the government to slash spending, which has resulted in government-funded organizations such as Al Jazeera, Hamad Medical Corp. and Qatar Museums to cut their budgets and lay off expat employees.

Cost-cutting

The MDPS report doesn’t go into detail on how much money the government is saving, but does suggest that the cost-cutting efforts are having an impact.

With hydrocarbon sales providing the bulk of government revenues, economists often estimate the “breakeven” oil price at which Qatar and other resource-rich countries will balance their budget.

The latest estimate from MDPS is that Qatar would theoretically balance its budget this year if oil prices reached $61.50 per barrel, down from $75.50 six months ago.

“This … breakeven oil price is considerably lower than that projected in December, given the government’s recent efforts to scale back spending.”

Oil prices are currently hovering around $50 a barrel.

A separate review in the MDPS report of Qatar’s economic performance last year underscores the challenge the country faces in reducing spending.

Preliminary estimates by the ministry suggest government spending was 10.4 percent over budget, which stems primarily from larger-than-expected expenditures on defense and security, water and electricity, government administration and education.

By contrast, the government underspent in terms of its health budget.

Economic outlook

Qatar’s economy will grow more slowly than expected this year, the report said.

According to the MDPS, GDP will increase 3.9 percent this year. While that’s higher than last year’s 3.7 percent, it’s also 0.4 percentage points lower than what the ministry predicted in December.

One possible factor are the “technical delays” that have postponed the launch of the new Barzan gas field, which is expected to start operating in the second half of this year.

For illustrative purposes only.

Maersk

For illustrative purposes only.

The field should provide a boost to Qatar’s manufacturing sector as production of refined products, fertilizers and petrochemicals increase.

However, it’s the construction sector that will lead the country’s economic growth this year.

The MDPS projects the industry will expand by 9.9 percent in 2016 as the country continues to build new roads, rail lines, stadiums, hotels and a massive electricity and desalination plant in Umm Al Houl that’s expected to start operating next year.

This spending on new real estate and infrastructure projects is also expected to lift Qatar’s services sector as developers and construction companies hire firms in the financial, transportation and communication sectors.

Thoughts?