In response to decreases in the price of oil and gas, the GCC finance ministers have signed a Value Added Tax (“VAT”) agreement which will impose new taxes on certain items and services. Neither Qatar’s officials nor the Shura Counsel (parliament) have publicized specific details related to the upcoming VAT regulations. However, it is understood that certain food products, education services, and most of the healthcare sector will be exempted from VAT. The new VAT regime is expected to be introduced not later than 2018.
Although Qatar has made stride in diversifying its economy, it still mostly depends on the income generated from oil and gas, and accordingly is seeking to enact VAT regulations and reform its fiscal programs quickly in order to secure stable governmental revenue in light of the deficits it has recently experienced.
While there is no doubt that a VAT regime would boost the state’s takings, it remain unclear how new taxes will affect the state’s business economy. Currently, Qatar Law No. 21 of 2009 imposes a 10% corporate income tax, subject to exemptions. The relatively low tax rate has made Qatar an appealing local for potential investors. However, the introduction of a VAT regime could potentially cause potential and existing investors to re-examine their business models.
While the introduction of VAT is not expected until 2018, experts are already analyzing the potential impact of such a change in policy. Of considerable concern if the impact the introduction of VAT would have on SMEs should the State decide not to exempt them from certain forms of taxation. Many smaller investors, especially in the SME sector, would likely have difficulty if they were required to pay high VAT rates, together with the 10% corporate income tax. Furthermore, the recruitment of unskilled labour may become more difficult as the cost of living increases as a result of VAT.
Does this then mean that Qatar is shifting from its previous generous subsidizing country to a taxing region? The answer to this question remains to be seen, and will ultimately depend on the reaction to the new tax regime by businesses and individuals. As no specific regulations have been circulated to date, the majority of the population has adopted a “wait and see” approach to the proposed VAT regime.