Qatar is taking a closer look at the possibility of introducing value-added tax (VAT) along with other GCC states, suggests a key planning document.
The idea is to take up the long-term challenge of broadening the revenue base and reduce the non-hydrocarbon deficit (which is the overall surplus excluding hydrocarbon revenues).
Backed by a large increase in hydrocarbon revenues, Qatar is expected to post huge surpluses in 2011 as well as this year, raising the share of hydrocarbon income in the total state revenue.
The General Secretariat of Development Planning (GSDP), in its report entitled ‘Qatar Economic Outlook 2011-12’ released recently, said that although Qatar’s overall fiscal balance has been in surplus during the past few fiscal years, the balance on the non-hydrocarbon account has been in persistent deficit. This deficit was, for example, equivalent to an alarming 17 percent of the country’s GDP in the financial year 2010-11.
The trend, thus, underlines the need to diversify the state revenue sources, the GSDP hinted.
Economists and businessmen, however, warn that if at all the government imposes VAT, small and medium enterprises and local products should be exempt from it.
“It would be advisable to bring bigger companies with large profits within the net of VAT and spare smaller players,” said investor and financial analyst, Abdullah Al Khater.
He said there have been discussions in the past as well to levy some kind of tax on private companies, so VAT isn’t a totally new idea.
Al Khater, though, warned that one of the adverse impacts of imposing VAT could be on inflation as prices would zoom further.
“Companies would pay up VAT but they would eventually make the end-user cough up extra so that their profitability is not affected,” he said in remarks to this newspaper yesterday.
The GSDP has, meanwhile, said that inflation is likely to be low this year–much like 2011–and severely criticized local ‘monopolistic trading practices’ as being one of the sources of upward price pressures.
“They (monopolies) drive a significant wedge between the prices of some goods on international markets and those for consumers in Qatar,” said the planning secretariat. Put in simple words, the secretariat drubbed the monopolies (local dealerships of branded foreign goods or services) for charging more for the commodities and services marketed by them locally than their rates prevailing elsewhere in the world. The GSDP said that when the pay packages of Qatari public servants were raised late last year there was the risk of these traders who enjoy market power raising prices.
But the government is alert to such risks and has set up a high-level committee to detect and act on unwarranted price rise, the planning secretariat said.
© The Peninsula 2012
This article was published in Zawya