Student’s Research Reveals How Gulf States Are Attracting Investment

The economy in the Arabian Peninsula is becoming more multinational and less reliant on oil. Sarah Alsultan ’20, an S.J.D. candidate at the University of Virginia School of Law, explores this transformation in a new paper analyzing those countries’ taxation strategies.

The Kuwait native, who will graduate in December, will present her research virtually at the University of Oxford’s 9th Annual Centre for Business Taxation Doctoral Conference, slated for Sept. 7-8.

Alsultan earned an LL.B. and LL.M. in public law from Kuwait University and an LL.M. in tax law from Case Western Reserve University.

In our occasional series “Star Witness,” Alsultan discussed her paper’s findings and how she dreams to help policymakers in achieving Kuwait National Development Plan as a law professor.

What did you do before coming to UVA to study law?

After graduating with my bachelor of law from Kuwait University in 2010, I worked at Kuwait Council of Ministers General Secretariat in the Department of Legal Advice and Legislation as a government attorney and adviser between 2011 and 2015. Prior to that, I was an intern at the Kuwait Public Institution for Social Security.

I decided to do my Ph.D. in tax law since the tax landscape in the Gulf Cooperation Council region is going through significant changes, and has been for the last decade. First, consumption taxes are recently being adopted for the first time. Also, corporate tax laws are substantially reformed, which is unprecedented because the laws remained untouched in most states since their adoption in the 1950s.

Why UVA Law?

UVA is well-known in having a wide range of tax courses and an excellent tax faculty. In fact, my mentor Professor Erik Jensen, who taught me federal income tax and corporate taxation at Case Western Reserve University, highly recommended that I work under the supervision of Professor Ruth Mason. After taking a course on European tax law with Professor Mason, I immediately realized that she would be a perfect match for my project to help me better develop my research and critical thinking skills. Professor Mason is prominent international tax law scholar and working under her supervision has been true privilege. 

Tell us about your paper and how it came about.

“The Gulf Cooperation Council (GCC) States: the New Players in the International Tax Competition Game” investigates the emergence of tax competition (using tax rates and incentives) among GCC oil-rich states (Kuwait, Saudi Arabia, United Arab Emirates, Qatar, Bahrain and Oman). In particular, the anecdotal evidence gathered in this paper suggests that, unlike the rest of the world where tax competition existed since the 1980s, GCC states’ efforts to lure non-GCC businesses to do business in GCC states has been emerging since 2000.

My analysis suggests that mainly because of oil wealth, the fear of losing economic sovereignty, the need to protect the newly established private sector and domestic elites’ influence over decision-making processes (who gain the most from restrictions imposed on foreigners), the GCC states were reluctant to open their market to foreign firms prior to 2000. In fact, poor investment environments and heavy restrictions on foreign investors existed in most GCC states. The states imposed high progressive corporate income tax rates — between 45% and 55%.

However, this picture has radically changed since 2000. Because of the consistent fluctuation of oil prices, the sharp increase in the youth population (which increased the need for immediate job creation) and the pressures of globalization, GCC states realized that relying on one source of revenue was an unsound policy. Consequently, GCC states started using their tax systems to attract investors. Since 2000, tax rates have declined significantly to a 10% to 20% flat rate. Interestingly, I noticed that when one state adopts a new rate, other GCC states quickly respond and adopt a lower rate. Also, most states introduced tax incentives.

The paper concludes with several recommendations on how to better coordinate tax policy among the GCC states. What impact do you hope your paper has?

The paper and its recommendations mostly have a direct impact on the GCC region. The true value of the paper is that no literature has fully investigated the nascent tax competition or recommended to address it on the GCC level. In particular, I have recommended that the GCC needs to evaluate the merits of tax competition, coordinate tax policy at the regional level and have a voice in the global efforts to address harmful tax competition.

However, as the title of my paper indicates, tax competition is more like a game where countries around the world compete with each other to attract foreign investors. Thus, policymakers in other countries might be eager to understand the motive behind the unprecedented reform in GCC states’ tax policy, and its future.

What’s next for you?

I cannot wait to defend my dissertation, publish it and then start working as a law professor at Kuwait University. I am looking forward to taking back the knowledge I gained to help reform tax policy in Kuwait and attract investors. Attracting investors is part of Kuwait’s long-term reform plan known as “New Kuwait,” which aims to transform the country by 2035 into a financial and trade hub, both regionally and internationally.