Expats are facing the unthinkable – losing subsidies, benefits and maybe even paying income tax in the Gulf States.
Oil is the culprit. A spectacular decline in the price a barrel from more than $100 to around $30 in less than two years is forcing the rulers of once oil-rich desert kingdoms to rethink their finances.
None of the countries are in immediate trouble because years of high oil prices have allowed them to build large cash reserves to fend off short term financial problems.
But the oil flood is here to stay. OPEC countries reckon the price will not climb back to $100 or more for a barrel until the end of the next decade.
Meanwhile, billions of pounds of income are draining away.
VAT to plug oil gap
Saudi Arabia has seen more than $10 billion evaporate from treasury coffers in the past few months, while the region is expected to earn $275billion less in 2015 than the year before.
The International Monetary Fund has advised the Gulf Co-operation Council (GCC)countries of Saudi Arabia, United Arab Emirates, Kuwait, Bahrain, Qatar and Oman that introducing VAT on goods and services will raise much needed cash.
The GCC has agreed in principle to introduce the tax at a uniform rate – expected to come in at around 5%. Egypt has half-heartedly tried to impose a sales tax, but with limited success.
Rulers are also reducing or scrapping subsidies on health, water rates and utility bills for nationals and discounted subsidies for many expats are going with them.
Governments are also lopping the numbers of expats allowed to work in the GCC zone.
Bahrain wants to cap the number at 50% of the population, while Kuwait and Qatar are also moving towards expat quotas.
To make matters worse, an oil war between the major international producers is underway.
With sanctions lifted against Iran, more oil is sloshing around and OPEC is refusing to cut back pumping in a bid to force more expensive producers out of the market.
“The GCC has to deal with the managing lower oil prices from a position of strength and not wait for economic problems to build up and then act,” said Christine Lagarde, managing director of the IMF.
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