By November 11, 2015 Read More →

Low oil prices: IMF chief stresses reforms, suggests levying taxes for Gulf countries

Low oil prices may be combated with tax revenues, higher energy prices

oil prices

Residents of countries like Kuwait have been warned that low oil prices could lead to harder times ahead.

KUWAIT CITY _ On a trip through a Gulf squeezed by low oil prices, the head of the International Monetary Fund repeatedly called on countries to cut back on subsidies, lower government spending and consider levying taxes.

But implementing Christine Lagarde’s suggestions is easier said than done in the oil-rich countries, even as crude prices have dropped by over 50 per cent since last year.

Generations have grown used to cradle-to-grave social programs, comfortable government jobs and tax-free living. While Gulf leaders, including those in Kuwait, have begun warning harder times may be ahead, some citizens remain opposed to any cuts.

“Almost every week we hear about Kuwait giving grants left, right and centre to other nations that are in need of money. It’s as if the government doesn’t realize that we, in Kuwait, are also in need,” said Abdulaziz Al-Adwani, a Kuwaiti school teacher. “It’s not logical to start imposing a tax on citizens when the government can afford to give grants to this country and that country.”

That’s the kind of opposition Lagarde, the IMF’s managing director, and Gulf leaders face in moving forward with any structural reforms. Countries like the United Arab Emirates, Qatar and Kuwait have large cash reserves to cushion the blow of low prices. However, if depressed prices continue into next year and beyond as analysts predict, even oil powerhouse Saudi Arabia could find itself hurting.

After meeting finance ministers of the Gulf Cooperation Council in Qatar on Sunday, Lagarde offered her own recommendations on how to move forward. The council includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

“The main elements are common across countries: an expansion of non-oil tax revenues; raising energy prices, which are still well below international norms; firm control of current spending, particularly on public sector wages; and a review of capital expenditures,” Lagarde said in a statement.

In an interview published Tuesday by the Kuwaiti daily Al-Qabas, she suggested levying taxes on commercial profits.

“Citizens would understand the reasons behind such financial measures in the light of the oil price decline,” the newspaper quoted her as saying.

Lagarde left an economic forum Wednesday in Kuwait City after giving a speech without speaking to reporters. Kuwaiti Finance Minister Anas al-Saleh, on hand for the event, said low oil prices wouldn’t slow the country’s development plans, though it likely would raise money for projects through Islamic bonds known as sukuk.

“The government is considering adopting sukuk as a means to bolster income and alleviate the expected budget deficit,” al-Saleh said.

The Gulf Cooperation Council on Sunday offered yet another way to raise money for its members, a proposed 100 per cent “selective tax” on tobacco products equal to customs duties, the state-run Kuwait News Agency reported.

But even that may be a step too far, as Saudi smokers consumed an average of 35 cigarettes a day in 2012, one of the highest rates in the world, according to a study by the Institute for Health Metrics and Evaluation at the University of Washington. Kuwaiti smokers that year had 21 cigarettes daily on average, the study found.

“Whenever I travel on vacation, I buy my cigarettes from Kuwait,” smoker Abdullah Al-Enizi said. “Now to hear that they might increase the prices even more is very bizarre. Lawmakers should protect the rights of consumers and reject this proposal.”

The Canadian Press


Posted in: News

Comments are closed.