(MENAFN- The Peninsula) By Satish Kanady / The Peninsula
The US federal tax reform is expected to add value to Qatar's investments in the US. Qatar has significant exposure to various asset classes, which are expected to benefit from the sweeping tax overhaul, according to Doha-based investment strategists.
The tax bill passed by republicans in the US Senate is expected to boost profits of corporate. The centerpiece of the existing legislation is a reduction in the corporate income tax rate to 20 percent from the current 35 percent.
Qatar's sovereign wealth fund and some family businesses are largely exposed to the US investment industry. Back in 2015, Qatar Investment Authority (QIA) had committed $45bn investment in the US. Recently, QIA announced that it had deployed more than 50 percent of its committed fund.
In the real estate sector, QIA has prioritised its investments. It has also exposure to the US industry, alternative energy and technology. According to information available on public domain, QIA has also extended its portfolio to health sector. Drug and biotechnology companies would be among those benefiting hugely from paying a reduced tax rate.
'Qatar has significant exposure to US market, especially in the real estate and equity market. Either way both asset classes will benefit from the tax reforms. The reforms will be a boost for the equity investments and other asset classes. And this will add value to Qatari investments over there, Talal Samhouri, Head of Asset Management, Amwal told The Peninsula.
According to Bank of America Merrill Lynch (BofML) Research team, of Qatar's combined sovereign wealth fund, a significant share is in listed strategic foreign stocks. Excluding domestic assets and real estate, BofML believes that QIA's two-thirds of the portfolio could be private equity. Assets managers believe this asset class will benefit from rising equity markets, as higher prices increase the value of the holdings they manage and improve the performance of their funds.
Private equity firms are primarily watching proposals to limit the amount of interest expense they can deduct from portfolio companies' taxable income, according to market experts.
However, it's not all rosy for GCC investors. Airlines in the region are worried that the tax reforms have provision to target them. One Middle East carrier has accused US airlines of using tax overhaul to ‘punish' Gulf carriers. The Middle Eastern airlines say a provision included in the bill can wreak havoc on international travel.
'The prospective headline cut to the US corporate tax rate from 35 percent to 20 percent is a positive but not as significant as it may look at first sight. Historically, the US corporate sector has enjoyed an effective tax rate closer to 25 percent due to ample scope for deductions. The US Congressional Budget Office believes that the total revenue lost from the US business taxes from the Senate tax bill would be $744bn over 10 years.
Following implementation, this would represent approximately a 6 percent increase in net income for the US corporate sector from 2019, noted Alastair George, investment strategist at Edison Investment Research.
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