Tax hit on horizon for UAE?

Tax hit on horizon for UAE?

Dr Nasser Al Saidi advocates VAT at 5%

08 May 2012

ONE of the big attractions of living in this part of the world is the ability to pay much less tax, but is all of that about to change?

The possible introduction of both income tax and value-added tax (VAT) in the Emirates has been on the agenda for a few years now. It first reared its head around 2008 and rose to prominence again at the height of Dubai’s financial woes as a means of the Dubai government getting to grips with its debt mountain.

The International Monetary Fund has recommended that Gulf countries at least introduce VAT, and many experts believe this is more likely to be introduced before any form of income tax.

In April, Sheikh Hamdan bin Rashid Al Maktoum said there were no tax plans in the 2012 fiscal budget, but that the Ministry of Finance was “currently updating studies on the economic and social effects in case new taxes are proposed in the future”.

Hidden taxes

We might not pay tax on our earnings or on the purchase of most goods and services, but the UAE does have numerous ‘hidden’ taxes.

These include the recently-introduced housing fee of 5% of the rental yield or purchase price, as well as a 30% charge on alcohol, 10% service charge at restaurants, municipality tax on hotel rooms and Dubai’s Salik, the electronic road toll collection.

Nevertheless, a 2011 PricewaterhouseCoopers report rated the UAE as having the second lowest effective tax rate between 2006 and 2009 at just 2.2%. Venezuela had the lowest, at -3.4%, while Japan had the highest, at 38.8%.

Single flat-rate tax

Businesses often bemoan unexpected charges they are faced with in their day-to-day transactions. It can be difficult for business to gauge these costs, as they keep changing, according to Michaal Al Gerwagi, an Emirati current affairs commentator.

The answer, he feels, is to replace these ‘multiple fees to multiple departments’ with a single, low-level tax. This would not only help businesses to ascertain their cost base, but would also allow government departments to streamline their operations.

Dr Nasser Al Saidi, chief economist at Dubai Financial Centre Authority, believes expatriates should “make a greater contribution to the provision and financing of public goods and services” with a relatively low level of VAT at 5%.

Taxing issue

Introducing a tax on income would be less straightforward. In counties with established tax systems, income tax goes towards the provision of healthcare, schooling, social housing and things like unemployment benefit.

Would the UAE offer these provisions to everyone – locals and expats? If not, what effect might an income tax have on the UAE’s appeal as an expat destination?

Some expats are already taxed by their own countries while working abroad – the US is a notable example. British expats who spend 183 days or more in the UK are classed as a UK resident and are, therefore, liable to UK tax on any UK income and capital gains.

Do you think taxes are likely to be introduced here? What impact would this have on you? Comment below...


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