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Middle East and Central Asian economies need more tax reforms: IMF

The Middle East and Central Asian economies need to streamline their taxation systems to boost revenues and tackle challenges compounded by the Covid-19 pandemic and the war in Ukraine, the International Monetary Fund has said.

Tax revenue gaps — the difference between potential and actual non-hydrocarbon tax collection — are very large, estimated at more than 14 per cent of cumulative non-hydrocarbon gross domestic product of the region, the fund said.

There is considerable scope to raise additional tax revenue, with some of the largest gaps found in low-income countries and fragile states in the region. Tax gaps are smallest in the Caucasus and Central Asian countries, reflecting the progress they have made recently, according to the Washington-based lender.

Countries in the region, like other emerging markets and developing economies, derive the bulk of their tax revenue from consumption-based taxes through a variety of indirect taxes and fees.

However, the revenue yields are relatively low and the use of direct taxes — especially personal and corporate income taxes — is relatively limited, the IMF said.

Economies in the broader Middle East, North Africa and Central Asia have taken steps in recent years to reform their tax systems to improve revenues, maintain spending and meet their sustainable economic development goals. A taxation system is also essential for countries, especially emerging nations, to cut their dependence on debt, which has been on the rise consistently, to bridge budget deficits.

The UAE, the Arab world’s second-largest economy, in January said it will introduce a federal corporate tax on the profit of businesses on or after June 1, 2023. A standard statutory tax rate of 9 per cent applies to companies, positioning the UAE competitively when compared with other financial centres and developed economies. There is, however, no plan to introduce personal income tax, the government said at the time.

Tax policy design, especially low tax rates and pervasive tax exemptions, is among the main reasons driving tax revenue shortfalls in the region, the IMF said.

Hydrocarbon-exporting countries, especially those in the GCC, have particularly low rates for corporate income tax, personal income tax and consumption-based taxes, despite recent progress. Tax exemptions are also widespread across the broader region and significant for direct and indirect taxes, the IMF said.


The National

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