International Monetary Fund Managing Director says it’s time for the GCC to increase taxes across the board, including thinking about income tax.

When it comes to economic strategies and issues, Christine Lagarde knows what she’s talking about. She’s the first female managing director of the International Monetary Fund (IMF) and was once the Minister of Economic Affairs for France.

Well, she told an audience of finance experts in Abu Dhabi today that tax is the “lifeblood of modern states” and is what “allows governments to provide public goods that support strong and durable growth”.

She went on to say that the countries of the Gulf should focus on VAT, corporation tax, property tax, and that they should even implement personal income taxes.

*Tourism tax in the UAE*

“The policeman on the beat, the nurse who is attending to a patient, the teacher who is inspiring young minds, the scientist who is conducting cutting-edge basic research: these are only some of the people who could not do their work without reliable government income,” she explained.

Why does she think the GCC needs to “eventually allow for introduction of personal income taxes”? Because, as she described it, “oil exporting-countries are adapting to a new reality of low commodity prices”. Oil was at Dhs110 a barrel in January this year (whereas it was Dhs411 a barrel in June 2014).

She also met with His Highness Sheikh Mohammed bin Rashid al Maktoum, Vice President of the UAE and Ruler of Dubai, while her to discuss the recent and successful economic diversification of the UAE.

This was her suggestion for a GCC taxation plan:

“Start by putting in place a simple system that initially focuses on VAT—ideally, a harmonized regional VAT. Even at a low single-digit rate, such a tax could raise up to 2 percent of GDP.”

 “Add to this a greater emphasis on corporate income taxes, as well as property and excise taxes.”

“And continue to invest in building tax administration capacity that could eventually allow for the introduction of personal income taxes.”

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Photo: Christine Lagarde/Twitter