The GCC governments will face a combined fiscal deficit of about US$350 billion over the next five years, according to the IMF, which bases its estimate on an oil price of $56 per barrel. This means that unless a government finds non-oil revenue to plug its deficit, it will be forced to borrow. VAT is an important source of non-oil revenue as it can bring in at least 1.5 per cent of GDP, or one-fourth of deficit.
While VAT is an indirect tax applied at every stage of the supply chain, the end effect of the levy is on consumers who finally pay the tax while buying a good or service. There are four important stakeholders in this VAT episode – governments (beneficiary), businesses (tax collectors), consumers (taxpayers) and consultants (VAT experts). So the question is who will be affected the most? 
First, let us look at the government that will receive this VAT. Obviously being a beneficiary means that it need not worry about VAT. In fact it should be celebrating. However, as tax administrator, it may have to worry to see that it collects all the VAT that is collectible. It needs to create the necessary infrastructure and manpower to supervise and collect the VAT, and make sure that this does not dent the GCC’s image of a tax-free haven.
Second, consider the businesses that are supposed to collect the VAT and deposit it with the government. They should be the most worried since they will be the ones that have to perform an extra function, which could result in additional hiring and costs, although they do not receive a dir­ect economic incentive. If it is a question of simply collecting and remitting, then it may not be a big issue. However, being in the middle brings several complexities.

Source: The National