The Gulf's New Social Contract

Income taxes for the Gulf Arabs?

The Gulf's New Social Contract

By Sultan Al Qassemi | Feb 08, 2016 | http://www.mei.edu/content/article/gulfs-new-social-contract

The demise of Sheikh Khalifa Bin Saeed al-Qassimi, the Arab ruler of the southern Persian governorate of Lingah, in the late 19^th century resulted in its bustling port switching to Iranian hands. According to historian Graeme Wilson, “Over the weeks and months which followed the arrival of the new regime in Lingah, taxes were repeatedly raised and new charges levied for basic services.”[1] Within a few years, the port fell into disarray and by the early 20th century many of its Arab and Persian merchants moved to the free trading port of Dubai, and, as the saying goes, the rest is history.
There have recently been escalating murmurs across the Arab Gulf states of the possible introduction of income taxes as governments grapple with low oil prices. The drop in prices has been sharply felt across the six Gulf Cooperation Council states, which combined control 30 percent of the world’s proven oil reserves and supplied just under a quarter of the world’s oil demands in 2013. According to economist Nasser Saidi, crude oil sales accounted for 85 percent of Gulf governments’ revenues in 2014. Oil prices have fallen from a peak of $145 per barrel in 2008 to below $30 a barrel in 2016. As a result, major projects across the Gulf have either been scrapped, delayed or put on hold.
To cope with the loss in oil revenue, most GCC states have introduced indirect taxation, including municipal and road taxes, and have openly discussed the introduction of Value Added Tax in the near future. The GCC has distinguished itself globally with its unique offering of zero income tax environments for both citizens and expatriates. This policy, coupled with substantive subsidies that have generally provided for a decent standard of living, have helped GCC states retain a degree of internal stability at a time of regional turmoil. The introduction of direct income taxes would, thus, be a major departure from this policy whose repercussions are unpredictable.http://www.mei.edu/content/article/gulfs-new-social-contract