Qatar contemplates value added tax

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Tax regime
Web posted at: 7/3/2008 2:33:16
Source ::: The Peninsula/By RABIN GUPTA

DOHA • Qatar is looking at the possibility of different kinds of taxes, according to the latest edition of the International Bank of Qatar's (IBQ) 'Qatar Economic & Financial Review'.

The review says: "Planned changes in tax legislation include the introduction of a value added tax (VAT), a hotel service tax, a municipal property tax and a reduction of exemptions under the tax holiday policy."

Qatar is considering imposing tariffs not because it is in dire need of money, in fact, that is far from the case, but as a way of reducing its "heavy dependence on the hydrocarbon sector".

The current tax system is characterised by a narrow tax base with no consumption taxes. "The government is taking steps to broaden the non-oil revenue base," said the report. However, there seems to be no intention to introduce income tax. Tax-free salaries are one of the many benefits which have ensured foreign expertise flocks to the country.

Introduction of a tax regime would ensure there is a diversification from the energy-based economy although the government is also promoting small and medium enterprises (SMEs) and aiming to moving towards a knowledge-based economy, as expressed in the Emir's recently-announced Qatar National Vision (QNV) 2030.

Experts have said imposing VAT of say three to five percent will not prove inflationary as inflation is high enough as it is. In short, it would have minimal effect. Dubai recently recommended a three percent VAT on goods and services, the first in the Gulf region to do so.

However, given the country's vast energy resources, there is no getting away from it being dependent on oil and gas. The IBQ report said: "Despite the desire by Qatari authorities to diversify the country's energy-based economy, the oil and gas sector will continue accounting for a growing share of economic activity as long as prices remain elevated and the projected increases for oil and natural gas comes online."

IBQ estimates the natural gas share of hydrocarbon output will rise above 32 percent this year, reducing oil's share to below 70 percent for the first time ever.