By Staff Reporter
Tax reforms by the GCC countries are bearing fruits but the oil-producing countries need to widen corporate tax reforms, the International Monetary Fund (IMF) chief said.
“Tax reforms have started to bear fruit in some countries, but further progress is needed. For example, the global minimum tax initiative provides the GCC with an opportunity to implement wider corporate tax reforms,” Kristalina Georgieva, managing director of the IMF said during the annual GCC ministerial meeting.
Over the past few years, GCC countries have introduced new taxes such as VAT, corporate tax and excise tax, which are still among the lowest in the world.
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Starting June 1, 2023, the UAE introduced a 9 per cent corporate tax, which was among the lowest in the world. Earlier, the UAE introduced a 5 per cent Value-Added Tax (VAT) and Excise Tax on tobacco, carbonated drinks, energy drinks and other harmful products.
Saudi Arabia increased VAT to 15 per cent in 2020. The tax was rolled out in 2018 as part of the GCC-wide agreed framework.
Starting January 1, 2025, Bahrain has also announced that it will levy a minimum of 15 per cent corporate tax on multinational firms with a revenue of 750 million euros.
Georgieva also emphasised the further regional integration which holds immense potential. “A reduction in non-tariff barriers could play an important role to reach this potential. Moreover, this would enhance the resilience of the GCC to the risk of geoeconomic fragmentation.”
On fiscal policy, the IMF chief said most GCC countries are undertaking consolidation, but more needs to be done to build sufficient savings for future generations.
“The ongoing rationalisation of public expenditures — including by reducing energy subsidies — also remains crucial. This would not only help fiscal consolidation efforts but also create space for targeted support to the vulnerable. It could also pave the way for priority public investments that fit into the broader economic diversification agenda,” Georgieva said during a joint annual meeting of the Financial and Economic Cooperation Committee and the Committee of Central Bank Governors of the Cooperation Council for the Arab States of the Gulf (GCC) with the IMF.
Praising the GCC countries’ competitiveness, she said four GCC countries are now among the top 30 most competitive economies in the world. But the progress on diversification needs to be accelerated and the risks coming with some reforms need to be properly managed.
Close to 4% GCC growth in 2025
IMF chief said the region remains a bright spot despite the numerous shocks over the past few years.
“Unemployment is low, inflation has been contained, exports from major ports have recovered quickly, and international flight arrivals have held up. And the outlook is positive. We now expect overall growth in the GCC to rebound in 2024, and to strengthen to close to 4 per cent in 2025 as oil production cuts are gradually unwound,” she said.
“Over the medium term, non-hydrocarbon activity is set to remain strong on the back of ambitious reform efforts. Despite all this good news, there are risks to the outlook. Most notably, fluctuations in oil prices and production could reduce financial buffers and have negative spillovers to the non-oil economy,” said Georgieva.
Smoothing landing
As for the world economy, she added recent developments continue to suggest a smooth landing is in sight.
“Emerging Asia is the main engine of global growth, supported by surging demand for semiconductors and electronics. At the same time, the near-term growth outlook is constrained by conflicts and disruptions to commodity production and shipping in the Middle East and Central Asia, sub-Saharan Africa, and Latin America”, the IMF chief said.
She elaborated that there is considerable uncertainty surrounding the global outlook, especially as the ratcheting up of protectionism risks raising trade and production costs. “There is also considerable uncertainty around monetary and fiscal policy choices that will largely shape the world economy in the coming period.”
IMF chief expressed concern that global growth remains mediocre in the medium term. “For many countries, expected growth in five years remains weaker than in one year, suggesting that the world economy faces persistent headwinds.”
Source: Gulf News
