Diversifying revenue sources and implementing tax reforms remain critical priorities for the oil-exporting Gulf Cooperation Council (GCC) countries, according to the International Monetary Fund (IMF).
In its latest World Economic Outlook, the IMF stressed that GCC countries must continue expanding their tax systems, which includes introducing and expanding value-added taxes (VAT), personal income taxes, and corporate income taxes, to reduce their reliance on oil revenue. The IMF noted that after adopting VAT, some GCC states are now introducing corporate income taxes, partly in response to the global minimum corporate tax framework.
The UAE, for example, introduced a 5% VAT in 2018, which was later increased to 15% by Saudi Arabia. In 2023, the UAE also implemented a 9% corporate income tax. Oman, on the other hand, is in the final stages of introducing a personal income tax aimed at high-income earners.
The IMF highlighted that these tax measures will not only help oil-exporting countries reduce their dependence on oil revenues but will also provide much-needed revenue for non-oil economies in the region. The IMF also pointed out that scaling back regressive subsidies and avoiding broad wage increases will help reallocate resources to more targeted social protection programs.
Jihad Azour, IMF’s Director for Middle East and Central Asia, emphasized that tax reforms in the GCC are part of broader strategies to diversify their economies. He noted the progress made by countries like the UAE, which has built a nearly fully automated tax administration system, offering efficient collection and refund processes.
Azour explained that while much of the focus so far has been on consumption taxes like VAT, the next step is to expand the tax base to include corporate taxes and personal income taxes to create a more sustainable revenue base. This shift, he added, is important because implementing these changes while economies are growing is far more effective than waiting until economic growth slows.
The IMF also recommended that GCC countries avoid widespread subsidies and generalized wage increases, advocating instead for more targeted social protection initiatives to address economic challenges. Expanding the tax base will provide the necessary funds to meet both developmental and social needs in the region.
