By Rob Morris
With ‘stealth charges' creeping in, has the Gulf region lost its pulling power as a tax haven for expatriates?
Tax-free salaries have long been the biggest incentive for Western citizens contemplating a new life in the GCC. But with ‘stealth charges' creeping in, has the region lost its pulling power?
News that shoppers visiting Mall of the Emirates, and possibly other Dubai malls, will soon have to pay for parking has received a cool response from the emirate's residents.
On June 28, a spokesperson for the shopping complex told Arabian Business that the undisclosed fees would be introduced to deter Dubai Metro users from leaving vehicles at the mall's car parks for more than four hours.
"At the Mall of the Emirates we do everything to ensure that there are sufficient car park spaces available for our customers," the spokesperson said. "With Mall of the Emirates Metro station so conveniently situated we are looking into a number of ways we can manage our parking spaces. We will announce details of any schemes shortly."
But 60 percent of respondents to a recent Arabian Business poll have blasted the idea, leading to suggestions that parking fees are the latest stealth charge to hit the ‘tax-less' emirate.
Since July 2007, motorists driving along Sheikh Zayed Road have paid AED4 ($1) when passing through a toll gate in what some consider a sneaky tax. Last year, the Roads and Transport Authority (RTA) introduced further tolls and may add more if the $4.2bn Dubai Metro fails to reduce road congestion.
"I can't tell now whether there will be more Salik toll gates or not because we will evaluate the traffic situation after launching the Dubai Metro operation in September this year," RTA chairman and executive director Matter Al Tayer told reporters.
Responding to Al Tayer's comments, Arabian Business readers criticised proposals for more Salik gates.
Among them, some claimed having toll charges in Dubai when no mass transport system existed was merely a ploy to generate revenue from motorists.
"If Salik exists to manage traffic (at the moment it's clearly a road tax and nothing else) and to control traffic congestion why do [the RTA] not turn it off at night, which would keep the traffic off residential roads, and implement a higher charge during peak traffic?" Jan, an Arabian Business reader, commented.
Elsewhere, speed cameras are another bugbear for Dubai residents that consider such measures a stealth tax. The RTA, however, argued the reason for installing 450 cameras in March 2008 was to reduce the number of road fatalities across the emirate. That same month, three people died while 347 were injured in a 200-car pileup between Dubai and Abu Dhabi.
Police said at the time that the accident was caused by speeding and thick fog.
More recently, Dubai Police announced it will set up hidden speed radars to catch "arrogant motorists". The cameras, which can detect and photograph speeding cars from 150 metres away, will hang from trees, electrical poles and even bridges from July 15. Anyone caught speeding faces fines up to AED2,000 ($545) and eight black points, with motorists having their licences suspended if they pick up a total of 24 points.
"Motorists must oblige with the specified speed limit on Dubai's internal roads and highways or they will be nabbed by gun radars which would help police catch the ‘arrogant' drivers who do not comply with the speed limits," Brigadier Mohammed Saif Al Zafin, director of General Department of Traffic, told media reporters.
A report recently issued by the World Health Organisation supports the police chief's claims, with 37.1 of every 100,000 people in the UAE killed on the roads in 2007, almost seven times more than those in Britain.
Despite the statistics, cynics in the UAE and beyond still insist the reason for introducing speed cameras, parking fees and road tolls in particular is to generate cash in tough economic times.
They also say municipality charges for dining in restaurants or fees amounting to five percent of the annual fee for renting apartments are also unjust. Others, however, take a different view, claiming the cost is a small price to pay for public services."The arguments that rage on road toll are whether these are ‘stealth taxes', imposed by government as an easy way to raise revenues, with no intention of easing on congestion, ostensibly the ultimate goal," Dr Mohamed Ramady, associate professor of economics at King Fahd University of Petroleum and Minerals, told Arab News when the Dubai Salik charge was announced.
"Arguments against toll road charges state that any successful measure of congestion control needs to ensure that those driven off the road by toll charges have alternative means of public transport available to them," he added.
"Small businesses and others located in the centres where congestion charges are applied have also added their voice that, without an alternative and efficient public transport system in place, businesses and city centres would die."
Beyond the UAE, other countries in the GCC appear to have clearer more defined ‘tax' systems in place. For example, nationals and GCC residents in Saudi Arabia are required to pay zakat, a religious levy, on 2.5 percent of their personal assets or business profits each year. Meanwhile, expatriates are not subject to personal income tax.
In Oman, local and foreign firms will from 2010 pay 12 percent corporate income tax rate, a drastic drop from 55 percent 18 months ago. The fee is considered favourable compared to rates in other GCC states. Indeed, businesses in Kuwait are required to pay 15 percent, while corporate income tax in Qatar stands at 35 percent. Government proposals, however, could see Qatar reducing the rate to 10 percent in a bid to attract more foreign investment. Elsewhere, Bahrain does not apply taxes on foreign firms' net profits.
Away from business, the GCC is considering a green tax for non eco-friendly goods. In April, the proposal to add a levy to items considered harmful to the environment was mooted at a meeting of undersecretaries from GCC member states in Muscat.
Ali Al Kiyumi, director general of nature conservation in Oman, told reporters: "We are discussing a proposal to introduce green tax in the region which would be modelled on the lines of similar system in some of the EU and Far Eastern countries."
Taxes would discourage people from buying or using anything that could harm the environment, he added. "We would impose these taxes on goods arriving at all the entry points, airports and harbours."
The general reaction among GCC residents to environmental levies is unclear. But even without its introduction, some believe the stealth taxes already in place ensures that the GCC is no longer a tax haven.
The antipathy towards taxes, stealth or otherwise, was summed up in an Arabian Business poll last year which found that most UAE expatriates would consider leaving if VAT was introduced. They reasoned that taxing goods would lead to other levies such as income tax. Dubai Customs executive director Abdul Rahman Al Saleh said at the time that the UAE was expected to introduce VAT sometime in 2009, without giving a specific date.
That plan may have changed in light of the economic situation, but it appears UAE residents will not hang around too long if the government introduces VAT anytime soon.
This is a normal evolution for states and economies. Dubai has no other substantial source of income to fund the government budget and the only way to fund government budget is to impose direct and indirect (stealth) taxes on public services and imports to the country. What is fair to say that the taxes should be in return of a services and there are alternatives (like the case of Salik) to citizens to avoid paying the indirect tax in a legitimate way which laws in Dubai is missing.
If proof is needed that most measures by the government are aimed at "taxing" us rather than solving problems then here are some examples : If Salik is meant to help reduce traffic then why are we charged out side rush hour and on Fridays and Holidays when there is hardly any traffic ? Why do Tenants pay 5% municipal tax on residences when it is the Landlord who is raking in the money ? Why does the Municipality charge me "Garbage Charges" when I renew my trade license when it provides no such service at all and in fact imposes a "Fine" on me for dumping our waste in Bins near our establishment ? Why do we have to pay 15% "land" Tax on the rent we pay for our warehouse when it is the Landlord who is getting the income from exorbitant rents ? Why is the government putting a 6 month ban on EVERY labor card that is canceled - regardless of the reason for cancellation - and then happily lifts the ban if the subject agrees to pay a Dhs. 5,500 fine ? If all these are not out and out examples of "Stealth" taxes I don't know what are. One can offer a dozen more examples of such charges, but then I would be laboring the point. We all appreciate that a government needs money to provide services and infrastructure. But is it too much to ask that it is done in an open, honest and fair manner ?
If salik was just to reduce traffic, why do they charge motorbikes. They should encourage motorbikes as they do not create traffic jams. This decision is based purely on money raising
I am sure if the Emirates Mall apply this we will see it empty and shoppers will rush to other malls. such decission should be applied wisely, examples: if a shopper stays for less than 2 hours he shouldn't pay fees, and more than 2 hours but made shopping with more than specific amount (say 250 DHS) should park free also.