The International Monetary Fund (IMF) has warned that taxing the income of expatriates – as some Gulf states, including Saudi Arabia, are contemplating – would reduce the area’s appeal to foreign workers.After the half-dozen Gulf Cooperation Council (GCC) members agreed to introduce five per cent VAT on sales from 2018, some of the states are now looking at other taxes, including charges on expat earnings, financial transaction taxes and taxing overseas remittances, in a bid to offset revenue losses caused by the fall in the price of oil.
A report from the IMF accepted that taxing foreign workers in the GCC would boost regional revenues. “A progressive tax on higher paid foreign workers could also boost opportunities for nationals to take those jobs as foreigners are likely to demand higher wages, making these less competitive relative to similarly skilled nationals,” the report added.However, the IMF said the introduction would make the region much less appealing to expats, at least in the short term. “This may be more of a concern in the case of higher-skilled workers who are likely to have more employment options. This could lead to a skills shortage if nationals with similar skills are not available,” the report said.