Syria to apply VAT in 2009

Mohammad Hussein, Syria's Minister of Finance has announced that VAT will be applied in Syria next year with a flat rate of 10%.

Mr Hussein, who was talking in a press conference held on May 17, said that the scope of the VAT had not yet been defined.

Also, whether other rates would be applied to special categories of products had not been decided, he added.

Mr Hussein also said that basic food items would be exempted.

The imposition of VAT has been expected for some time and is part of the Government plan to overhaul its fiscal system. A new Income Tax, which brought down the top tax rate to 28%, from 63% previously, was passed in 2003 and amended in 2006, while customs fees were brought down sharply in line with the Government's policy to liberalize its foreign trade and enter into free trade agreements with Turkey and Arab countries.

The Government has also been seeking new sources of income as revenues from oil exports, which represented over 70% of budget income a few years ago, have fallen rapidly. According to Mr Hussein, net oil proceeds now represent only 20% of Government revenues.

In its annual report, under Article IV of its Articles of Agreement, the International Monetary Fund described VAT as one of the two main pillars of Syria's 'fiscal adjustment'. It said that the application of VAT would have 'a strong revenue raising potential with only a limited impact on production and investment.'

According to the report's projections, income generated from VAT would represent 3.9% of GDP by 2012. The IMF worked on the assumption of a VAT rate of 5% rising gradually to 15% starting 2014.

Revenues from taxation reached SYP 309bn ($6.43bn) in 2007, Mr Hussein said, or 17% of GDP. In 2000, income from taxation stood at only SYP 174bn.

Taxation from public sector entities represented 38% of the total, while taxes and fees paid by Syrian individuals and corporations represented 62% of the total. "This ratio reflects the actual size of the private sector, which contributes to 65% of GDP," Mr Hussein said.

Syria's 2008 budget projects a deficit of SYP 193bn ($4.20bn), equivalent to 9.8% of GDP. However, the Government hopes to do better than planned and bring down the deficit to 7%, Mr Hussein said.