A New GCC Fiscal Era - A Look at the Macro and Firm-Level Impact of Tax Reforms

In 2014, the collapse of global oil prices and the resulting increase in fiscal deficits and debt triggered a wave of spending cuts, tax policy and subsidy reforms. The introduction of excises and VAT, broadening of CIT, and subsidy reform have changed the GCC fiscal landscape. Little is known on how those recent changes have been impacting the economy. This paper first highlights the fiscal history and current fiscal landscape across the GCC. It then utilizes both macroeconomic and firm-level financial data to analyze the impact of tax policy reforms on economic and firm-level outcomes using panel data techniques. The paper finds that the different reforms have had a minor impact on GDP growth, inflation, and other economic variables, while the impact on firms is more nuanced. VAT is not found to impact firm financials, suggesting well-functioning VAT refund systems. Changes to CIT, however, have some impact especially on smaller companies, while the impact of excises depends on analyzed subgroups. The emerging picture suggests that tax policy reforms have had an overall rather small impact on the GCC economies, but care should be taken in exact policy design