Due to the decline of oil prices, many Middle East and North Africa
(MENA) countries have implemented various kinds of subsidy reforms aimed to
increase government revenues.
Analysts support the MENA should implement an effective tax regime and
cut down on expenditure in order to compensate on the oil revenue losses and
increase government funds.
MENA governments are considering introducing new taxes aimed to increase
their funds to maintain both economic and social stability. Currently,
financial policy ideas aim to increase government revenue, enhance investment
concerning projects that generate added value on the existing gas and oil
export plans as well as boost investment flows towards non-oil and gas based
fields. The majority of MENA countries have undertaken large infrastructure
projects including electricity, transport, industrial facilities, water,
seaports and rail.
The MENA governments acknowledge the significance of using tax policies
to motivate international companies to set up within the region. The decrease
in oil prices, and the fact that oil prices may remain low, has influenced
countries that usually spend large amounts on infrastructure projects.
Countries throughout the region are facing budget deficits because of the loss
of oil and gas profits and are now considering introducing new tax schemes to
increase their revenue.
GCC countries as well as Egypt are considering introducing VAT. The UAE
has recently reported they are working towards introducing a corporate tax and
VAT. The GCC have been considering introducing a VAT for many years. Many
experts believe that the decline of oil prices, which has led to the loss of
revenue, is the incentive the GCC countries needed to introduce a VAT.
It is expected that the new tax regimes will be introduced over the
following two to three years. Initially the tax rates will be low and will
increase over time. The tax revenues will aid governments make up for the loss of
oil revenue.
Countries within the region are concerned that the introduction of taxes
will influence their investment inflows and competitiveness. However, experts
argue that the implementation of indirect taxes will not affect investments.
Indirect taxes will be added on the price of goods and services. This
means the end-consumer will be subject to pay tax on the goods and services
he/she consumes. Therefore, the tax imposed will be passed from the business to
the consumer, meaning the tax will not influence a business planning to set up
in the area.
