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UAB Chief: Gulf States will tax eventually

By Mustafa Al Arab and Oliver Joy, CNN
updated 7:10 AM EDT, Fri April 5, 2013
Tax-free Gulf States such as Qatar are reportedly considering a value added tax by 2015.
Tax-free Gulf States such as Qatar are reportedly considering a value added tax by 2015.
STORY HIGHLIGHTS
  • Gulf States are said to be considering plans for a value added tax (VAT) by 2015
  • Youssif also expects a good year for Arab banks, estimating that net profits will grow at 15%
  • The Union of Arab Banks, headquartered in Beirut, Lebanon, was setup in 1974

Editor's note: Click here to watch the full interview in Arabic.

(CNN) -- Tax-free Gulf States will eventually be a thing of the past, according to the head of the Union of Arab Banks.

Gulf States in the GCC (Gulf Cooperation Council) are said to be considering plans for a value added tax (VAT) by 2015 while also lowering corporate tax rates to increase foreign direct investment, according to the Paying Taxes 2013 report conducted by the World Bank, IFC and PricewaterhouseCoopers.

The GCC is made up of Bahrain, Kuwait, Saudi Arabia, UAE and Oman.

Adnan Youssif, who is chairman of the union, said that any tax should not be considered a "negative act."

Youssif also expects a good year for Arab banks, estimating that net profits will grow at 15% in 2013. He noted, however "the growth will not be equal in all countries."

The Union of Arab Banks, headquartered in Beirut, Lebanon, was setup in 1974 to foster cooperation between Islamic banks and support those in the region.

Youssif said: "I think the Gulf banks will take the lead, spearheaded by banks in Saudi Arabia, UAE and Qatar respectively." He added: "That is mainly due to the huge government financed projects in these countries."

The bank union chief is less positive on Europe following the recent crisis that has engulfed the eurozone's third-smallest economy, Cyprus. Youssif believes the euro will face "more problems" as a result of the political decisions made to solve the crisis in Cyprus.

European lawmakers initially proposed a levy on all depositors in the two biggest Cypriot banks, causing savers to panic and protest, in return for a 10 billion euro ($12.8 billion) bailout.

He said: "The bailout deal will hit hard on them and this will lead into a serious problem, but I am afraid that more banks in other European countries will face similar issues."

Most recently, North African countries such as Egypt and Libya have approved new laws on their financial systems. Both countries underwent leadership changes during the Arab Spring that began in 2012.

In an attempt to attract foreign investment, in March Libya approved a law that will introduce Sharia-compliant banking and stimulate the country's private sector, according to the ruling National Transitional Council.

But Youssif said he is not in favour of shifting towards Islamic finance without fully understanding all the aspects of Islamic banking. He said: "It is not only about laws and Islamic banking products; there should be an appropriate environment and solid follow up and control from the central bank."

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