IFC takes the lead on Yemen’s tax reform
13 March 2008
While IFC meeting with government and private sector is expected to lower corporate taxes, World Bank and IMF conditions will double the General Sales Tax in 2009.
On March 12, 2008, the World Bank’s private sector lending arm, the International Finance Corporation (IFC), organized a workshop for Yemeni government officials and the private sector to discuss the country’s tax reform process. The initiative is one of a series of conditions introduced by the World Bank with its latest $50 million grant to support the Yemeni government’s economic reform program. According to the IFC, the tax reform process is aimed at increasing government revenues and improving the country’s investment climate.
In order to be eligible for the grant, the Yemeni government agreed to implement policy changes suggested by the World Bank and the International Monetary Fund (IMF). While the IFC takes the lead on advising the government to lower corporate taxes to be “in conformity with international norms” as mandated by the IMF, Yemen will be required to make up for lost revenue by doubling the General Sales Tax to 10 percent in 2009. Other proposed reforms include ending fuel subsidies by 2010 and cutting wages and salaries by 1.6 percent of GDP.
With 42 percent of Yemenis currently living in poverty, the Bank estimates that the elimination of petroleum subsidies would increase the poverty rate by 9.2 percent. Meanwhile, new World Bank research highlights Yemen as among the countries worst hit by a recent global spike in food prices, which could lead to a further 6 percent increase in poverty rates. The introduction of a higher regressive sales tax will also hit the poor the hardest, and further restrict their ability to meet their basic needs. Together, these factors could result in the number of poor Yemenis reaching an unprecedented level.
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