The Big Debate: Should Dubai introduce taxation?

Leading local and international experts consider whether the emirate should relinquish its tax-free status in order to fund its infrastructure projects and what the consequences would be if it did

Benjamin Franklin’s famous quote – that “nothing can be said to be certain, except death and taxes” – is frequently revived whenever the topic of government levies are brought up in this part of the world.

In Dubai, it is commonly believed that any move to relinquish the emirate’s tax-free status would send expatriates rushing to the airport with one-way tickets back home and the only certainty would be that it would likely trigger the death of the economy.

The debate raged to the surface again earlier this month when Damac’s Hussain Sajwani, the boss of one of the largest private-sector real estate companies in the region, addressed the possibility of Dubai giving up its coveted tax-free status.

“If there were tax, I don’t see anything wrong with it,” Sajwani said in an interview with The Sunday Times. “We live in a world where everywhere there is tax. Singapore has taxes. Hong Kong has taxes. Are they failing?

“Dubai has to spend hugely on infrastructure. So, if the government decides to impose VAT and some corporation tax, this is normal. It needs the money. We live in a world-class city, a very safe city with fantastic infrastructure, and the people who enjoy those things say, ‘We don’t want to pay for it.’ Come on, you’ve got to pay.”

Sajwani’s comments generated heated debate among Arabian Business readers: Would such a move lead to an exodus of expatriate workers and companies? Would firms decide to opt for Bahrain or Qatar when looking at the region?

Would locals also be taxed? Should citizenship be awarded to those who pay tax long-term? Would this be a sensible way to help fund the billions of dollars due to be spent on infrastructure in the coming years, especially in the run up to the World Expo in 2020?

We asked some experts for their opinions on the heated issue. While some commentators were reluctant to adopt an opinion on the matter – we’ll refrain from naming and shaming – we managed to align a panel of experts to give us their two cents on some of the pertinent issues and many offered up further food for thought.

The expert panel debating the issue consists of (in no particular order):

Neal Todd, partner and international tax specialist at law firm Berwin Leighton Paisner

Christopher Bovis, professor at Hull University Business School

Jonathon Davidson, chairman of the British Business Council in Dubai

Nicholas Cully, director - head of business development at Dubai-based wealth management firm Sovereign Corporate Services

Sanjay Modi, regional managing director at recruitment firm

Abdul Aziz Al Yaqout, regional managing partner at law firm DLA Piper Middle East

Christopher Hennessey, professor of finance at London Business School

Chas Roy-Chowdury, head of taxation at the Association of Chartered Certified Accountants

Shrikanth S, research manager in the business and financial services practice at consultancy firm Frost & Sullivan

Bob Swarup, author and principal at advisory firm Camdor Global

Click on the next page to see why our first expert believes it would be "a bit perverse" for Dubai to go down the tax route...

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Posted by: gees

No Personal Income Tax or Corporate Tax or VAT to be levied. If done this will push all the FDI/Expat investments out of Dubai/UAE.

Other than good infrastructure, tax benefit is the major +ve factor here overriding non-business/expat friendly legal system & very expensive banking system.

When Govt is not subsidizing any of the services/commodities (other than petrol) being provided to Expats, there will be no need to impose tax to balance budget. No need for VAT which will increase cost for tourists who come shopping.

NO TO TAXES - Income Tax/Corporate Tax/VAT

Posted by: DNS

There is already things like Salik and other charges when you conduct business in the UAE. More charges might start to be introduced soon.

Posted by: naresh Santani

I feel since the Govt. is spending too much on infrastructure and giving world class facilities to everybody, in my view, if they impose a small percentage of VAT on Consumer Sale, it would give great help to Government.
However, I feel income tax would be a disadvantage.

but, yes small percentage of Vat on Consumer Sale wouldn't put any burden on consumer but would be good revenue for government, somewhere consumers should take burden.

I may be wrong as I am not expert, but my views only.

Posted by: I love dubai

No. Taxation will hamper Dubai's economic growth and future prospects.

1. Taxation will force the businesses to move to other emirates or other gulf countries. Any income-tax will ultimately increase cost of running a business in the emirate. This cost is already high in Dubai/UAE compared to Singapore for example.

2. Dubai is currently at top with the existing NO tax system. There is no need operate upon an athlete who perfectly healthy, performing excellently, and have many Olympics ahead of him.

3. Major part of the income will be wasted in managing the taxation department. Ultimately it will foster inefficiencies. It will force people to find loopholes. There will be a major part of people/govt.'s energy wasted on tax matters.

4. The income-tax could create ill-will in the minds of huge number of population which helped and is helping to build the country. Such a dissatisfaction in the minds of people may not be helpful to any government.

That is just a few points ...

Posted by: kingkaiser

Telcoguy, why in the world do you believe that taxation will, in any way, help with enforcement? How has paying fees helped real estate investors who invested in projects that never took off?

Comparing the Nordic countries to Dubai is ludicrous. Have you seen the level of state support for tax payers there? Unless Dubai is willing to match that, the comparison is flawed. This is also why comparisons to London and NYC fail in my opinion - the taxes there are used to help the individuals as well as the city. Here, you will pay taxes, and told to shove off if you lose your job or even complain (aka, "you know the way to the airport"). That sense of partnership cannot exist until the mindset here changes. If there is real benefit to tax payers, perhaps I'd change my point of view - but that aspect needs to be put on the table simultaneously for people to not react negatively.

Posted by: Taxedinotherways

I feel that it would be disastrous if Dubai were to impose a tax on either companies, individuals, or direct, such as VAT etc.

People here tolerate the NUMEROUS problems and issues for several reasons, weather, lifestyle etc, yet the 'no-tax' factor is certainly the main one. This is not a rant about the lack of infrastructure, its the absolute lack of organisation across the board. Dealing with DEWA - and its cost - tolerable when not paying tax. Start eating into peoples pay checks, there could be a revolt! Any government related matter - shambles - even the UK/US/Australia, can be difficult but is significantly easier than in Dubai. Constant building works - traffic etc...again, tolerable, but certainly something I could live without. Housing prices, purchase or renting - significantly higher than elsewhere.

Again, living in Dubai has great perks, but none are bigger than the tax free environment! The place would change without it!

Posted by: SAM

I agree with Nick from Romania; Value Added Tax (VAT) is the only reasonable tax for this part of the world. It is a consumption tax that will be paid by the ultimate consumer, be it native or expat. Such a tax will generate enormous revenue for the government and people will not feel the tax burden as back home, where you pay individual income taxes, corporation taxes, VAT and state/provincial taxes. VAT is the most efficient and most revenue generating tax with the least resistance by taxpayers. With VAT, the government will have to hire an army of enforcers, companies will hire an army of bookkeepers and IT/register suppliers will sell tons of new equipment that can adequately handle the tax. From my standpoint, I urge the government to move into that direction; it is a fair tax applied to all people of UAE and it will stimulate the economy, lower the unemployment level, generate additional revenue to the government and not rub the expat community the wrong way.

Posted by: Amman Mohammed

In my opinion. Dubai should not introduce Taxation. They should, if anything, introduce a mandatory 2% Zakat (if it is not there) and/or maybe the Jizya...

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