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Satyendra Pathak
DOHA
Qatar's decision to impose 'sin tax' on items deemed harmful to individuals like tobacco, fast foods, and soft drink on the top of the introduction of 5 percent value added tax (VAT) will boost Qatar's revenue from non-hydrocarbon sector, financial experts have said.
The introduction of these two taxes will play a vital role in meeting Qatar's goal to fully fund government expenditure with non-hydrocarbon revenues by 2020, the experts have said.
According to a global accounting firm, Qatar's decision to introduce tax on unhealthy foods and tobacco products will help meet its dual goals of diversifying its revenue base and reduce healthcare costs.
The firm said in a report that Qatar's revenue from non-hydrocarbon sources grew by an average 12 percent annually between 2008 and 2013. While it described the rate as 'impressive', it was still dwarfed by revenue from oil and gas which grew by 20 percent a year during the same period.
To fund government expenditure fully through non-hydrocarbon sources, the firm said, the economy would need to double its non-hydrocarbon revenue.
According to estimates, this gap currently equates to $62.5 billion. Given this gap, it said, Qatar will need to consider reforms to its revenue base to diversify the revenue sources.
"In such a situation, implementation of both the taxes will be vital in narrowing the huge gap," it said.
The firm, however, warned that any consumer-related tax needed to be implemented carefully.
"Such taxes should be introduced on a small and gradual scale in order to not provoke extreme reactions and to take into account differences between Qataris and non-Qataris," it said.
Although the exact amount of this 'sin' tax has not been revealed yet, a Doha-based market analyst said that imposition of 'sin' tax would go a long in reducing health care costs in Qatar.
"While the primary reason for introducing 'sin' tax is to overcome the low oil prices, there are also secondary reasons like minimising government's expenditure on healthcare subsidies," the analyst said.
"Healthcare costs have been steadily on the rise in the country. As Qatar subsidises much of the healthcare for its citizens, the costs of treating preventable diseases are taking a toll," it said.
Obesity and diabetes are one of the most common diseases in the country and the number of individuals affected continues to grow. The analyst said that by adding tax on goods that contribute to such diseases, it will reduce the consumption.
According to estimates, healthcare costs are estimated to be doubled by 2020, reaching $8.8 billion per year.
In a report released on Sunday, BMI Research has also said that the introduction of VAT at 5 percent in Qatar and across the Gulf Cooperation Council (GCC) in 2018 will have a positive impact on the region's fiscal position. It will have only a minor effect on inflation and other economic activities, the report added.
"VAT is part of a far wider fiscal consolidation plan as the region deals with significantly lower oil revenues, with broader measures including subsidy cuts and public sector employment freezes," the BMI report said.
BMI has said that Qatar will raise 1.1 percent of GDP from VAT.
The Fitch Group company, however, said that GCC countries might raise VAT to 10 percent over the coming years.
"Given our forecasts for oil prices to stay below $70 per barrel, we forecast most of the GCC countries to continue posting fiscal deficits over the next five years. It is therefore likely that VAT will be raised once the laws embedded and compliance issues are resolved," the BMI report said.
Highlighting the inflationary impact of VAT on the GCC economies, the BMI report said,"The inflationary impact from the VAT introduction across the GCC will be minimal. Firstly, the 5 percent introduction is small and the array of exemptions means it will hardly affect the major components of each country's consumer price index basket, most notably food and beverages."
As the country continues to seek ways to produce additional revenues away from oil, many analysts also feel that costs of living for residents will inevitably increase.
"Qatar's consumer price inflation will increase with the proposed introduction of value added tax (VAT) and other taxes on harmful items such as tobacco," the Ministry of Development, Planning and Statistics (MDPS) has said in a report.
The consumer price inflation is expected to increase gradually from 2.7 percent to 3.4 percent over the period, the report.
DOHA
Qatar's decision to impose 'sin tax' on items deemed harmful to individuals like tobacco, fast foods, and soft drink on the top of the introduction of 5 percent value added tax (VAT) will boost Qatar's revenue from non-hydrocarbon sector, financial experts have said.
The introduction of these two taxes will play a vital role in meeting Qatar's goal to fully fund government expenditure with non-hydrocarbon revenues by 2020, the experts have said.
According to a global accounting firm, Qatar's decision to introduce tax on unhealthy foods and tobacco products will help meet its dual goals of diversifying its revenue base and reduce healthcare costs.
The firm said in a report that Qatar's revenue from non-hydrocarbon sources grew by an average 12 percent annually between 2008 and 2013. While it described the rate as 'impressive', it was still dwarfed by revenue from oil and gas which grew by 20 percent a year during the same period.
To fund government expenditure fully through non-hydrocarbon sources, the firm said, the economy would need to double its non-hydrocarbon revenue.
According to estimates, this gap currently equates to $62.5 billion. Given this gap, it said, Qatar will need to consider reforms to its revenue base to diversify the revenue sources.
"In such a situation, implementation of both the taxes will be vital in narrowing the huge gap," it said.
The firm, however, warned that any consumer-related tax needed to be implemented carefully.
"Such taxes should be introduced on a small and gradual scale in order to not provoke extreme reactions and to take into account differences between Qataris and non-Qataris," it said.
Although the exact amount of this 'sin' tax has not been revealed yet, a Doha-based market analyst said that imposition of 'sin' tax would go a long in reducing health care costs in Qatar.
"While the primary reason for introducing 'sin' tax is to overcome the low oil prices, there are also secondary reasons like minimising government's expenditure on healthcare subsidies," the analyst said.
"Healthcare costs have been steadily on the rise in the country. As Qatar subsidises much of the healthcare for its citizens, the costs of treating preventable diseases are taking a toll," it said.
Obesity and diabetes are one of the most common diseases in the country and the number of individuals affected continues to grow. The analyst said that by adding tax on goods that contribute to such diseases, it will reduce the consumption.
According to estimates, healthcare costs are estimated to be doubled by 2020, reaching $8.8 billion per year.
In a report released on Sunday, BMI Research has also said that the introduction of VAT at 5 percent in Qatar and across the Gulf Cooperation Council (GCC) in 2018 will have a positive impact on the region's fiscal position. It will have only a minor effect on inflation and other economic activities, the report added.
"VAT is part of a far wider fiscal consolidation plan as the region deals with significantly lower oil revenues, with broader measures including subsidy cuts and public sector employment freezes," the BMI report said.
BMI has said that Qatar will raise 1.1 percent of GDP from VAT.
The Fitch Group company, however, said that GCC countries might raise VAT to 10 percent over the coming years.
"Given our forecasts for oil prices to stay below $70 per barrel, we forecast most of the GCC countries to continue posting fiscal deficits over the next five years. It is therefore likely that VAT will be raised once the laws embedded and compliance issues are resolved," the BMI report said.
Highlighting the inflationary impact of VAT on the GCC economies, the BMI report said,"The inflationary impact from the VAT introduction across the GCC will be minimal. Firstly, the 5 percent introduction is small and the array of exemptions means it will hardly affect the major components of each country's consumer price index basket, most notably food and beverages."
As the country continues to seek ways to produce additional revenues away from oil, many analysts also feel that costs of living for residents will inevitably increase.
"Qatar's consumer price inflation will increase with the proposed introduction of value added tax (VAT) and other taxes on harmful items such as tobacco," the Ministry of Development, Planning and Statistics (MDPS) has said in a report.
The consumer price inflation is expected to increase gradually from 2.7 percent to 3.4 percent over the period, the report.
