As the global economy becomes increasingly digital-driven, Gulf countries must adopt innovative fiscal strategies to remain competitive.
Smart taxation, powered by artificial intelligence, can address the complexities of the online economy while delivering fairness, efficiency and adaptability.
Digital taxation is now a worldwide priority as governments seek equitable contributions from tech giants that operate across borders without traditional tax footprints.
The Organisation for Economic Co-operation and Development (OECD) has introduced a two-pillar solution to try to tackle base erosion and profit shifting.
The first pillar reallocates taxing rights to jurisdictions where multinational enterprises have significant consumer-facing activities, regardless of their physical presence. The second establishes a global minimum corporate tax rate of 15 percent, reducing profit-shifting incentives.
More than 140 jurisdictions – including the UAE, Bahrain, Oman, Qatar and Saudi Arabia – had broadly committed to this agenda by late 2024.
Yet implementation of digital taxation measures across the Middle East remains patchy:
Last December the UAE announced a 15 percent domestic top-up tax on large multinational corporations, effective on or after January 1, 2025.
In addition, the country’s Federal Tax Authority is exploring AI-powered systems to improve risk assessment, taxpayer segmentation and enforcement precision.
Saudi Arabia‘s Zakat, Tax and Customs Authority is leading digital tax reform in the region. Its e-invoicing system, Fatoora, is being implemented in two phases to increase compliance and reduce the shadow economy.
Phase 1, in effect since December 2021, mandates issuing and storing structured electronic invoices. Phase 2, launched in January 2023, introduces real-time integration between taxpayers’ systems and the authority’s platform, rolled out in waves based on taxpayer turnover. Saudi Arabia has also embedded AI tools into Fatoora to detect fraud and verify transaction authenticity.
In Egypt, the Tax Authority is rolling out e-invoicing and e-receipt systems. A ministerial decree issued in 2020 stated that all VAT-registered taxpayers must issue structured digital invoices. In January this year, the e-receipts rules were extended to more businesses. These reforms enhance transparency, improve audit efficiency and align Egypt’s tax system with international best practice.
Despite this clear progress, a major digital taxation gap persists.
Many tech giants monetise large user bases and generate substantial regional revenue without establishing a meaningful tax presence. This contributes to public concern over fairness and limits much-needed fiscal space for governments.
Addressing this gap requires reimagining how tax systems operate.
Smart digital taxation involves deploying AI and data analytics to strengthen compliance, reduce evasion and uncover tax base erosion. It calls for adaptive policies that reflect the realities of digital and hybrid business models.
An International Monetary Fund report published in November 2024 highlights that AI offers tax and customs administrations an opportunity to minimise errors and reallocate staff resources toward more complex tasks, such as investigative work.
Adopting these technologies is a strategic imperative for Middle Eastern governments to modernise tax administration and secure long-term fiscal resilience.
AI also creates challenges, however. As more companies use algorithms to automate service delivery, target consumers and optimise operations, traditional tax rules struggle to capture where value is created.
In an AI-driven economy, labour and capital inputs are increasingly abstract, dispersed and software-based. The monetisation of user data, for example, is often unrecorded in local tax systems.
At the same time, though, governments can use AI to monitor digital transactions in real time, detect anomalies, identify under-reporting and forecast revenues. The OECD report Tax Administration 2023 observes that tax authorities increasingly use digital and AI-powered tools to improve compliance and reduce taxpayer burdens, particularly through real-time reporting and enhanced risk analysis.
To lead in smart digital taxation, Middle East governments must first accelerate the adoption of these AI-powered tools. Equally important is the reform of tax frameworks to account for AI-driven business models.
Regional co-ordination must also be strengthened, ideally through mechanisms such as the GCC or the Arab Monetary Fund, to avoid regulatory fragmentation and enhance the region’s global negotiating power.
In parallel, governments should invest in building internal capacity by training tax administrators, policymakers and data professionals in AI and digital regulation tools – and ethics.
As this transition unfolds, policymakers must maintain a delicate balance between innovation and regulation. Startups need space to scale, but global tech giants must contribute their fair share.
Manal Abdel-Samad is a senior adviser in fiscal policy and organisational restructuring. She was minister of information in the Lebanese cabinet
Register now: It’s easy and free
AGBI registered members can access even more of our unique analysis and perspective on business and economics in the Middle East.
Why sign uP
Exclusive weekly email from our editor-in-chief
Personalised weekly emails for your preferred industry sectors
Read and download our insight packed white papers
Access to our mobile app
Prioritised access to live events
Already registered? Sign in
I’ll register later
