Expat fears that more tax changes were on the way in Gulf countries are likely to be unfounded, according to experts.
For the first time, millions living in Saudi Arabia and the United Arab Emirates have started paying 5% VAT on goods and services.
Many debated this would lead to income and remittance taxes aimed at taking a slice of expat earnings.
But international finance experts Standard & Poor’s believe worries are unfounded as more taxes would generate little additional income for the Gulf State governments.
The Gulf’s largest country Saudi Arabia’s Ministry of Labour and Social Development has also tried to quell fears.
No truth in rumours
Spokesman Khaled Aba Al-Khalil said: “There is no truth in these reports. There is no intention at all to impose new tax on expatriates and whatever social media chatter is circulating about the new tax on expatriates is untrue.”
S&P says hiking income and corporate tax to 15% and imposing a 5% remittance tax on money sent home by expats would only raise government revenues by an average 3% to 4.5% of GDP and make little inroad into covering the revenues from oil and gas exports.
“A sharp hike in income tax on imported labour, for example, could make the region much less attractive to expatriates,” said the S&P report.
“If local nationals were also subject to such a tax increase it could upset the social contract. Moreover, costs of doing business would climb, dampening corporate profitability. We therefore expect any widening of the tax base will be only gradual.”
Only Saudi Arabia and the UAE have implemented VAT so far. Bahrain has signalled the tax will start later this year. Qatar is not expected to go ahead with VAT, while the government in Kuwait is yet to vote on the matter.
S&P estimates VAT will generate revenues of no more than 2% GDP and that after deducting administration costs and allowing for exempt categories, the amount raised will be a lot lower.
“Gulf States are more likely to hike VAT to 10% than introduce other taxes,” said the S&P spokesman.
Until the introduction of VAT, the Gulf States were a tax-free zone for expats.