RAMAIAH INSTITUTE OF MANAGEMENT STUDIES

TAXATION OF GCC STATES

INTERNATIONAL BUSINESS
BALASUBRAMANIAN S 2/13/2013 PA-1108

Taxation of GCC States

Introduction :The Gulf Cooperation Council [GCC] was established in an agreement concluded on 25 May 1981 in Riyadh, Saudi Arabia between: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE. These Countries formed with the view similar to European states for united regulation in its policy. These countries declared that the GCC is established in view of the special relations between them, their similar political systems based on Islamic beliefs, joint destiny and common objectives. The GCC is a regional common market with a defense planning council as well. The geographic proximity of these countries and their general adoption of free trade economic policies are factors that encouraged them to establish the GCC. Coming to taxation of GCC States these states were enjoying a period of relatively high oil prices and are rated highly in international surveys for their low taxation levels, it might seem strange for them to consider introducing various kinds of taxation. Indeed, the principal domestic role of each GCC state during the oil era has arguably been the provision of benefits to their populations rather than the extraction of taxes.

Reason for Bringing Taxation Policy

There were several factors that forced the GCC states to implement the taxation policy these as follows:
Domestic public welfare provision is increasingly absorbing GCC energy export revenues. Future energy export volumes could be under threat as domestic energy consumption absorbs increasing levels of oil production. Increasing numbers of bilateral and/or regional Free Trade Agreements are reducing revenues from trade-related taxation. Partially as a consequence of economic globalization, since the late 1990s international institutions have recommended GCC states implement taxation policies. In 2001 an IMF report argued GCC states could no longer rely on oil sales, and recommended they cut spending and implement income tax, corporate tax, consumption tax and value added tax. Basically it was the declining revenues of OIL forced the GCC states to think about implementing the Tax system in order to generate more revenues.

Implementation Procedure For GCC Taxation

Following are the procedures and steps recommended by its Financial and Economic corporation committee: The GCC customs union shall be implemented effective 1st January 2003. Customs Union is the territory wherein customs duties "taxes" as well as the regulations and procedures restricting trade among the member States are abolished and wherein unified customs duties "taxes" and trade and customs regulations for trade with the non-member States are implemented. A Common External Customs Tariff for products imported from outside of the GCC customs union and a Common Customs Law. Unified customs regulations and rules applicable in all member States. Unification of the internal customs, financial and administrative regulations and procedures relating to importation, exportation and reexportation in the GCC States. The free movement of goods among the GCC States without customs or non-customs restrictions, while taking into consideration the

implementation of the veterinary and agricultural quarantine regulations and the prohibited and restricted goods. Treatment of the goods produced in any of the GCC States as national products. All customs administrations of the member States shall implement the Common Customs Law of the GCC States, its Rules of Implementation and Explanatory Notes.

Single Point Entry into GCC States:The Single Point of Entry is one of the most important principles for the formation of the customs union of any economic community. These follows:I. Any land, sea or air customs port of the GCC States that has connection with the external world shall be deemed as a point of entry of the foreign goods into any member State. II. The first customs port of the GCC States vis--vis the external world shall conduct the inspection of the goods imported to any member State, verify their conformity to the required documents, ensure that they do not contain any prohibited commodities and collect the applicable customs duties. III. Unification of the restrictions imposed on the goods permitted to be imported subject to the fulfillment of certain conditions in all the GCC States. IV. The adoption of unified rules for importation and movement of the government imports and of exemptions from customs duties. V. The foreign goods imported into the GCC States from the free zones shall be subject to the customs duties when exiting these zones and shall be

treated during movement to the other member States the same as other foreign goods.

Internal Regulations of the Member States governing importation, exportation, Reexportation and Transit:
1) Government Exemptions, Special Exemptions and Diplomatic

Exemptions shall be limited to the provisions of the Common Customs Law of the GCC States approved by the Supreme Council. 2) Exemptions under International Agreements 3) Availability of information relating to Commercial Registration in the Customs Offices at the implementation of the GCC Customs union 4) Temporary Admission/Exportation is subject to single point entry 5) The prerequisite of obtaining an import license for importing any commodity into any of the GCC States shall be abolished 6) The goods whose documents are received through the banks at the implementation of the customs union and the single point of entry

7) Treatment of the customs duties "taxes" collected under deposit on the foreign goods at the implementation of the customs union and the single point of entry 8) Mechanism of treatment of the in-transit goods under the GCC Customs Union 9) Mechanism for facilitation of the flow of the vegetable and animal products and the live animals imported into the GCC States 10) Treatment of the duties of the goods of special nature within the GCC Customs Union 11) Restrictions and controls of the importation and release of medicaments and pharmaceuticals 12) Treatment of the prohibited and restricted commodities in the member States under the GCC Customs Union

Administration and Collection of Tax: One Important is to which state of GCC has to implement the concept of Administration and Collection of Tax Small Business are likely to exempted those of less than $1 Million Change is administrative structure and change in administrative staff was required With greater focus on administration, collection and disclosure it may be possible to increase revenue from existing taxes, as well as from the introduction of new ones. In the longer term both tax receipts and transparency will increase.

Learnings
Its quite understood that Oil revenues of GCC states were declining and new revenue generation to be implemented The major drawback for GCC states is its increasing domestic consumption of Oil is huge which has affected the world market as well. One of the plus point of GCC states is its free trade policy it can freely trade with any of its GCC members as explained above. This study has helped me to understand to importance of Free Trade practice. It also helped me know how much a sound taxation policy is important for the growth of the Country

Conclusion
o We can see from the above that the possibility of introducing various

forms of taxation in the GCC states is not a new phenomenon. With growing populations and expanding economies the GCC states face increasing difficulties in funding the scale of public welfare provision and public sector jobs to which their populations have long been accustomed. o Kuwait parliament MP quoted that Kuwait sells oil to pay salaries,

future this cannot be practiced o However, over more than twenty years, the issue has been played

out within a changing domestic, regional and international landscape. o Taxation is an instrument that can and is already serving a

multiplicity of purposes in the GCC region. o Thus the taxation issue sits on a changing politico-economic balance

which raises the question: what is any new taxation for fluctuating oil prices and/or augment state revenues when faced with increased domestic demand for public welfare provision and public sector jobs?