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Economy

Oil producers to combat financial crunch with new taxes

DUBAI, United Arab Emirates -- Persian Gulf countries are eyeing new taxes on consumption and corporate profits to fight deep fiscal deficits born of low oil prices.

     Kuwait looks to levy a 10% tax on corporate profits as part of fiscal reform efforts, Finance Minister Anas al-Saleh revealed Monday. The oil-producing nation forecast in January a budget deficit of 12.2 billion dinars ($40.4 billion) for the fiscal year starting April 1.

     Al-Saleh also indicated plans to reassess prices of certain goods and public services. Privatization of airports, seaports and other facilities will be considered as well. No time frame was given for the proposed measures.

     The United Arab Emirates will introduce a 5% value-added tax in 2018, Finance Minister Obaid Humaid Al Tayer said in late February. The six-member Gulf Cooperation Council, comprising Saudi Arabia and other states on the Arabian Peninsula, will likely forge an agreement on a VAT in June, he said. The countries look to introduce the same tax rates at the same time, given the brisk flow of trade and people across their shared borders.

     These policies will mark the first time that Persian Gulf oil nations, accustomed to ample revenue from petroleum exports, will tax personal consumption. The UAE intends to exempt education expenses, health care and certain foods. The policy is expected to bring in up to 12 billion dirham ($3.26 billion) a year.

     Oil prices now come to around $40 a barrel, nearly 70% under their 2014 peak. That is below the level needed to balance fiscal spending in all six GCC countries, the International Monetary Fund reports. The IMF estimates that tumbling prices deprived oil-producing nations in the Middle East and North Africa of more than $340 billion in revenue in 2015.

     Gulf countries have fought tight finances with cuts in domestic fuel subsidies and other spending. The UAE abolished subsidies for gasoline and light-oil products last August. Saudi Arabia raised retail gasoline prices in December. Qatar, Bahrain and Oman followed in January.

     Large outlays in the form of subsidies to citizens and public services have helped keep the monarchies of GCC states stable so far. Cutting back on that spending and imposing taxes could stir broad unrest.

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