VAT will not make GCC based oils refiners less competitive

Source: ICIS News

The planned implementation of the new value added tax (VAT) in the Gulf Cooperation Council (GCC) from 1 January 2018 is expected to have limited immediate impact on the competitiveness of regional refiners, industry sources said at the ICIS Middle East Base Oils conference in Dubai on Monday.

The GCC plans to introduce a VAT of 5%, with the Kingdom of Saud Arabia and the UAE the first two countries to implement the tax.

Other GCC member countries will have 12 months after that to introduce the tax.

Speakers at a panel forum hosted by ICIS at the Middle East Base Oils Conference said the region’s refiners would not suffer any loss of competitiveness after the VAT is applied given that the VAT would not hit companies’ income levels.

The VAT, however, could affect sentiment among end-users given that it is a consumption tax, the speakers noted.

Nevertheless, demand for base oils should be considered as inelastic given that there are currently limited alternatives for certain types of base oils, said Uzair Aziz Dawood, head of external reporting at UAE’s ENOC.

Dawood also said a 5% VAT rate was still a relatively low rate compared with similar taxes being applied in other economies and hence would not drastically hurt consumer sentiment.

Samir Nawar, CEO at Saudi Arabia’s Petromin, agreed that there that there would be limited impact on the export competitiveness of GCC base oils refiners, although he added that the full impact of the VAT implementation on domestic base oils demand was still unclear.

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