Selective tax on luxury goods, harmful products

The Ministerial Decision No 64/2018 issued to impose local taxes/ charges on goods and services was published in the official gazette on Sunday. Darwish bin Ismaeel al Balushi, Minister Responsible for Financial Affairs, had issued the decision. As per the details published in the gazette, taxes of varying rates, to be borne by consumers, will be imposed on goods that are harmful to public health and environment. It also includes luxury items. It will include the Value Added Tax (VAT) that will be levied on goods and services from next year. In the Budget 2018, the government had indicated its intention to impose tax on selected goods in line with the other GCC countries. Saudi Arabia, UAE and Bahrain have started levying 100 per cent tax on tobacco and alcohol, and 50 per cent on energy drinks starting from January this year. The Ministry of Finance postponed the implementation of VAT in the Sultanate to 2019. According to the International Monetary Fund (IMF) estimates, VAT can generate 1.5 to 2 per cent of GDP (or 2.5-3.5 per cent of nonoil GDP) in the GCC even with relatively low rates. It said the VAT is an ideal revenue instrument for the GCC countries. In its report on tax reforms in the region, IMF said GCC countries should choose a combination of modern efficient tax instruments. “These could be based on a low rate broad-based VAT tax together with select excise duty, a business profits tax and possibly a recurrent property tax.