The Gulf states' plans to introduce a valued added tax (VAT) could be further delayed due to disagreement among the GCC states on taxation and the future of the GCC currency union, a senior International Monetary Fund (IMF) official told Gulf News."Any delay in achieving the GCC currency union will have an impact on the introduction of VAT across the region.
"Besides, all Gulf states are now experiencing an economic boom that has generated huge fiscal surpluses.
"In this context, introduction of tax will be a politically sensitive subject," said Mohsin S. Khan, IMF director for the Middle East and Central Asia.
The Gulf states have been planning to unify their economies and introduce a single currency by 2010.
However, during the past few months there have been doubts about the feasibility of achieving this goal due to differences of opinion among the states on the target date. Cracks began to appear in the GCC monetary union plan early this year.
The 2010 target came under cloud in May when the central bank of Oman publicly admitted that the country was not ready for the currency union.
The central bank chiefs who met on October 27 said the decision on the new deadline has been left to the GCC summit which will be held in December to decide on a new deadline.
"The December meeting of the GCC head of states is decisive not only for the currency union, but also for several common economic initiatives," Khan said.
The IMF has been advising the UAE on the technicalities of introducing VAT.
Although the current strong fiscal positions of most Gulf governments do not warrant the introduction of VAT from the revenue perspective, Khan said for increasingly service-driven economies such as Dubai and Qatar, it will offer a fiscal cushion, and to others a diversified source of income that will hedge the government finances against future oil price volatility.
"The Gulf states are moving towards the introduction of VAT, however. The implementation will happen in phases. Service-driven economies such as Dubai and Qatar will be the first to implement VAT, with Dubai already making significant progress," he said. ( Gulf )