Dubai- IMF Managing Director Christine Lagarde said that conflicts and lower oil prices will continue to affect growth and, by extension, also government revenue, not expecting oil prices to return to levels seen before June 2014.
“After many years of feeble growth, the IMF is expecting global economic activity to pick up this year and next, and across both the advanced and emerging economies. However, this does not mean we are out of the woods,” Lagarde said in her opening speech Sunday at the second Arab Fiscal Forum convened in Dubai.
She called for forging a comprehensive strategy that interlinks tax policy reform and administration reform to generate higher and more reliable revenue. That will make public finances more resilient and build economies that work for all citizens here in this region and across the world.”
Lagarde then posed a question on how countries can build tax capacity to sow the seeds of a healthy and inclusive economy for the benefit of all citizens.
Then she answered: “The momentum toward revenue mobilization, and the associated work going on at the international level, present the region with a major opportunity. By creating state-of-the-art tax systems, countries can generate resources needed to tackle future challenges and do so in an efficient and equitable manner.”
She further noted that as a first step, countries are introducing VAT and other consumption taxes for example on tobacco and sugar-sweetened beverages.
“Over time, governments may also consider deriving additional revenue from income and property taxation.”
“Countries in the Gulf, for example, are working to introduce a harmonized VAT in 2018. These efforts, which the IMF has supported through technical assistance, could raise anywhere from 1 to 2 percent of GDP, assuming a VAT rate of 5 percent,” she said.