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IMF chief urges Gulf states to launch tax regime

Xinhua, February 23, 2016 Adjust font size:

The International Monetary Fund's (IMF) managing director, Christine Lagarde, said Monday that the six Gulf Co-operation Council (GCC) member states must decrease public expenditure and implement a tax regime to compensate for the oil slump, reported the United Arab Emirates (UAE) daily Gulf news.

Speaking at the Arab Fiscal Forum in the UAE capital, the IMF managing director said the combined oil revenue losses of the GCC have risen to 340 billion U.S. dollars.

Therefore, the GCC states must increase revenues from other sources and simultaneously "restructure their tax system."

Lagarde was on her first visit to the UAE as IMF managing director and welcomed the GCC countries' plan to concurrently implement a Value-Added Tax (VAT) regime by 2018 as the tax "even at low single digit rates will increase the GCC's Gross Domestic Product (GDP) up by two percent."

Former French minister of finance, Lagarde, 60, recently appointed by the IMF for a second term supported by IMF member states including China, Germany, France and the United Kingdom, also said oil-producing Gulf states must build up tax administration capability to enable them to tax incomes.

Most GCC regimes raise taxes for foreign institutions and corporations, for example, foreign licensed banks in the UAE must pay 20 percent of their profits to the state.

Lagarde has been at the IMF helm since 2011 after her predecessor, Dominique Strauss-Kahn, was forced to step down following a sex scandal he was entangled in.

The IMF chief expressed confidence that the GCC are capable of adjusting their fiscal regimes to the new low oil status, which will "remain low for an extended period" as they did previously.

The IMF slashed the UAE's growth forecast twice, the last time being on January 23 down to 2.6 percent from 3.1 percent.

The Washington-based Global Monetary Fund with 188 member countries cited the ongoing slump of oil prices.

While oil contributes just short of 30 percent of the Gulf state's GDP, the "black gold" remains a major source of income for the UAE's federal and fiscal budgets.

In addition, the UAE's government started reducing public expenditure.

The IMF expects the UAE's fiscal deficit to widen by 7.5 percent.

Oil prices have fluctuated between 30 dollars a barrel, or 159 liters, since the start of 2016, down from over 110 dollars a barrel in mid-2014.

According to the IMF, the UAE needs oil prices to reach at least 73 to 80 dollars a barrel to breakeven fiscally. Enditem