Analysis

Qatar Establishes General Tax Authority

On 6 January 2019, Qatar launched the General Tax Authority (GTA) as a separate legal entity under the supervision of the Ministry of Finance (MoF). The GTA supersedes the Tax Department of the Ministry of Finance as the central tax collection and compliance function of the government. Remaining under the MoF’s umbrella, the GTA will retain the institutional memory of its parent entity, but will expand and streamline many of the tax activities of the state.

The law establishing the GTA mandates the authority to implement all tax laws and setup all related bylaws, procedures and instructions, and be responsible for their implementation. In addition, the GTA will review and assess tax return forms and collect taxes from subject entities.

 

Economic Diversification

In line with the Qatar National Vision 2030, which sets the target of a “diversified economy that gradually reduces its dependence on hydrocarbon industries,” establishment of the GTA is intended to broaden the state’s revenue base and increase the efficiency of tax collection processes.[1] Qatar has invested heavily in diversifying its economy over the past decade, with the non-oil and gas sector contributing 64% to total nominal GDP in 2017, from 42% of total nominal GDP in 2012.[2]

 

Unlike in the U.S., where personal income tax is a sizable component of tax receipts at the local and federal levels of government, Qatari law (Income Tax Law number 24 of 2018) stipulates that the salaries and wages of citizens and residents shall not be subject to any tax. This provision is a mainstay of Qatar’s economic competitiveness as it serves to attract talented foreign workers seeking a tax-free environment.

 

Eschewing personal income tax, the lion’s share (80%) of the Qatari state’s tax revenue is accounted for by royalties and taxes on oil and gas activity. These receipts are a fundamental source of funding for the government, representing 58% of total budget revenues.[3] Consistent with the government’s priority to strengthen fiscal buffers, the GTA will provide the financial instruments to diversify tax revenue.

 

Excise Tax Law

 Among the first measures the GTA will implement towards raising greater non-hydrocarbon taxes is the recently introduced Excise Tax law (number 25 of 2018). Also known as a “sin tax,” it came into force on January 1 this year and imposes a tax on a range of “health-damaging” goods. It includes a list of the “targeted goods”, with a 100% tax on tobacco products, alcohol and energy drinks; 50% tax on carbonated drinks; and 100% tax on special purpose goods.[4]

 

According to preliminary projections, the sin tax will increase non-oil and gas tax revenue to the state by 6%.[5] While this increase seems modest, the desired impact of curtailing consumption of these goods will achieve savings in healthcare costs that will amplify the 6% figure. Qatar’s health authorities are already grappling with some of the world’s highest rates of obesity and type 2 diabetes, prompting some to call it an “epidemic”.[6] From a fiscal standpoint, the prevalence of diabetes drives soaring health costs. According to researchers at Weill Cornell Medicine in Qatar, “while diabetes is already consuming about 20 percent of Qatar’s national health expenditure, it will consume nearly one-third of the national health expenditure by 2050.”[7]

 

Against the backdrop of these concerning health trends, the GTA’s enforcement of the sin tax – working closely with retailers to improve voluntary tax compliance – will have both direct and indirect economic benefits in the long run. The sin tax also syncs with Qatar’s objectives to build a healthier society through investments in world-class sports facilities and promoting sport as a bedrock of human capital development. The GTA will therefore also perform an important social good.

 

Tax Incentives

Supporting the government’s push to promote homegrown industries, the GTA will continue to implement an accommodating tax framework for participants in priority sectors.  Food security projects have consistently benefited from government support but have gained renewed focus in light of the blockade. Under Income Tax law (number 24 of 2018), the agriculture sector and fisheries are granted clear exemptions from tax. In addition to custom duty waivers, tax and other incentives in this sector represent new opportunities for American companies specialized in agribusiness and other sectors that the government is prioritizing post-blockade.

 

International Dimension

The GTA has been mandated to represent the State of Qatar in relevant international and regional organizations. It has also been authorized to sign tax agreements, including Avoidance of Double Taxation Agreements (DTA), with foreign partners to encourage economic cooperation and joint investments. As a large sovereign investor in a range of U.S. asset classes, with ever-increasing funds committed to the U.S. market, Qatar has long sought to enter into a DTA with the U.S. Going forward, the GTA will be responsible for negotiating such agreements and treaties with its international counterparts.

 

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[1] Qatar National Vision, pp.30

[2] IMF 2018 Article IV Consultation Staff Report, “Qatar: Selected Macroeconomic Indicators, 2013–23”, pp. 25

[3] Prospectus: State of Qatar Sovereign Bond Issuance: April 2018 “Public Finance,” pp. 8

[4] Gulf Times – January 2, 2019, “Cigarettes and Sugary Drinks become Dearer”

[5] Prospectus: State of Qatar Sovereign Bond Issuance: April 2018 “Public Finance: Custom Duties and,” pp.8. This projection uses 2018 budget figures for Custom Duties + Business/Corporate Income Tax as a reference.

[6] The Peninsula – April 3, 2019, “One in four adult Qataris will have diabetes by 2050: WCM-Q study”

[7] Ibid

 

 

 

 

(Image Source: Ministry of Finance – Qatar)

 

 

 

Qatar’s Natural Gas Sector
Building A Shared Future – Qatar’s Investments In The United States
Qatar’s Changing Economy & National Vision 2030

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