JEDDAH, 22 October 2004 — GCC states are weighing the prospects of imposing sales tax after abolishing joint customs tariff, Al-Eqtisadiah business daily reported yesterday quoting customs sources.
The sources said finance ministers of Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain will discuss the topic at their meeting in Jeddah today.
The proposal, presented by the UAE and supported by Saudi Arabia, is based on the experience of the European Union and still in the beginning stage.
The sources expected that the measure could be implemented by 2007 if approved by all member states and hoped that allocations for conducting a study on the issue would be made in the next GCC budget.
Once implemented it would start with imposing sales tax on products such as cigarettes and luxury cars as well as alcoholic drinks, which are sold in some GCC states.
The sources ruled out implementation of the measure on essential commodities such as medicine, medical appliances and foodstuff.
The GCC launched the customs union in 2003 when inter-GCC trade rose by 19.5 percent to $21.5 billion compared to 2002. It was the highest volume of trade between GCC states since the group was established in 1981.
GCC states have agreed to distribute customs revenues on the basis of the final destination of imports. Agreement has also been reached by member states on tax ceilings and imports have been divided into those that are tax-exempt, essential items to be lightly taxed and luxuries.
In May 2001, Saudi Arabia slashed customs tariffs on imports from 12 to five percent in a move widely welcomed by businessmen as a major boost to the country’s economy that would strengthen the Kingdom’s competitive edge. The move came on the heels of a decision earlier in the month aimed at easing trade regulations to allow imports of goods from fellow Gulf Cooperation Council states under preferential tariffs.
On May 7, 2001 the Cabinet agreed to drop a requirement that imports must be made by firms owned by Gulf citizens in order to qualify for preferential treatment in the GCC’s tariff regime. Instead, it decided that products imported into the Kingdom from GCC member states must have at least 40 percent local added value to enjoy preferential tariffs.
The GCC is a major consumer bloc with more than $80 billion in annual imports. The Gulf’s total population exceeds 31 million, reporting a four percent annual population growth rate. GCC states also hold about 45 percent of the world’s total oil reserves and 15 percent of gas reserves.
