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Sanaa: Yemen plans to cut its corporate tax rate to 20 from 35 per cent, partly to nudge companies towards more transparency ahead of a stock market launch planned for 2011, Deputy Finance Minister Jalal Omar Yaqoub said.
The tax rate cut should reduce widespread evasion, he said.
"We do have issues with the private sector in terms of opening their books to our tax authority. Nobody likes to pay taxes but we have to reach some sort of understanding."
The amended corporate tax law is now with the cabinet, but the new rate is still being discussed with the private sector, he told Reuters in an interview this week.
"Of course, the private sector wants zero per cent," Yaqoub said. "I'm sure we will reach agreement once the tax rate is accepted and transparency becomes easier."
Yemen, one of the world's poorest countries outside Africa, is the only one in the Arabian Peninsula that still has no stock exchange.
"The stock market will be established hopefully within 24 to 30 months," Yaqoub said. Implementing guidelines for corporate disclosure was among many reforms required to achieve that goal.
"We don't want to establish a stock market in 24 months and then find no companies to be listed."
He said the government planned to set an example by applying disclosure and transparency standards to state-owned enterprises due for restructuring and improved management to raise their value before partial flotation on the planned bourse.
"There's a great deal of mistrust between the government and the private sector," Yaqoub acknowledged. "Once we show them that we are...implementing these guidelines, this will change."
As well as facilitating privatisation, a bourse would provide a way to channel local savings to investments other than real estate and promote investment from the Gulf, he added.
Banks, already more transparent than many of Yemen's mostly family-owned businesses, would be top candidates for listing on the exchange, Yaqoub said, citing executives of the Islamic Tadhamon Bank and the Yemen Gulf Bank as among those interested.
Some of Yemen's biggest private firms might benefit from applying corporate governance standards to get listed, he said.
"Some of the family-owned business have reached their third or fourth generation," he noted. "Without governance procedures within them, they could suffer."
"A stock market is one way out of this, for each one to distribute shares among the real shareholders, to buy and sell and float some shares," Yaqoub said.
Complying with a stock market's rules for disclosure and transparency would also improve the chances of Yemeni companies to attract international partners and investors, he added.
Yemen was rated 131 out of 179 countries on the corruption watchdog Transparency International's list in 2007.
Yaqoub said the government had asked the organisation to help draft a 2006 anti-corruption law which had established a Supreme National Authority for Combating Corruption.
"It's not an easy issue," he acknowledged. "Some of the petty corruption has become part of the culture because of poverty and other civil service-related problems."
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