To maintain fiscal stability and continue to fuel major national transformations critical for economic sustainability in the face of rising government debt and elevated budget deficits, the countries will instead have to raise funds through taxation.
With an estimate of $2 trillion required to balance the budgets of the six GCC countries by 2030, implementing taxation is a complex task, one which took decades in developed economies. Current taxation revenue in one GCC country for example, is only 16 percent, in contrast to an average of 90 percent that OECD countries get as revenues from taxation. In countries where most people are not used to paying taxes governments will need to persuade individuals and businesses to file returns and pay the tax they owe.
Technological innovations that can be used to design an effective tax system will have to be backed up by solid legal and regulatory infrastructures. In addition, the spread of taxation will create more-demanding citizens, who will insist that the taxes they pay are used efficiently. That implies a drive for efficiency in government – as well as transparency, so that people can see for themselves that their money is being spent well. In effect, the region urgently needs new tax agencies to manage the complex interplay of taxpayers, other government agencies, and the public. These tax agencies should see this transformation as an opportunity to leapfrog the world’s more mature tax systems by building world-class, integrated systems without the legacy of complexities, inefficiencies, and existing technology.
Interdependencies in Tax Administration
Approached in the right way, new taxation systems are an opportunity for GCC countries to rejuvenate their administrative systems, holding down costs and improving interactions with the private sector. They should leapfrog more established agencies in other parts of the world, where legacy systems are often a barrier to the adoption of new techniques. This report outlines how they can set about the task.