08/09/2010 00:00 AST
The United Arab Emirates is taking nascent steps to raise income from wealthy residents accustomed to tax-free living as it tries to recover from last year's burst of the real estate and asset bubble. But mindful of its reputation as a low-tax centre and eager not to drive out expatriates, it is focusing on raising indirect taxes and resisting directly taxing its residents, at least for now. Dubai, the flashiest of the seven emirates, faces a grim budget situation and indebted state-owned companies
are being forced to sell assets in order to repay creditors, most notably Dubai World with a debt pile of $39.9 billion.
More, smaller, indirect taxes could be a way forward, even if they could not possibly translate into significant revenue sources for the government," said Philippe Dauba-Pantanacce, senior economist at Standard Chartered. "Even if anecdotal, the basic fee for a parking meter has no less than doubled a few months back, and we have witnessed a quasi 50 percent reduction in petrol subsidies at the pump." Fuel subsidies have been cut as well, and various fees for processing government forms and applications a
lso bring in revenue for the government, effectively working as hidden taxes.
But deciding to impose taxes outright would mark a dramatic shift in philosophy, as Dubai has used its mostly tax-free status to attract business to the region and help cement its position as a Middle Eastern financial hub. The last available Dubai budget data from 2009 shows that non-tax revenue-including oil and gas, enterprise profits and fees-accounted for around 71 percent of total revenue, and revenue from customs tax for around 29 percent. Dubai has a 2010 budget gap projected at 6 billion dirhams,
or 2 percent of gross domestic product, up from an expected 4.2 billion gap in 2009. But detailed 2010 figures are not available.
At the same time, the country is well aware that the introduction of more obvious tax measures-corporate and personal income taxes, value-added tax (VAT) or a property tax -- would drive expatriates and their businesses out. "As a local and even as the government, I want to keep everything as it is. I want Dubai to be the cheapest city in the region," Dhahi Khalfan Tamim, the head of Dubai's budget committee, said last month. Still there are signs that the government is eager to find new ways to boost inco
me.
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