Is income tax coming to the UAE? And what will happen if it does?
The UAE has always celebrated its free income tax system. It’s what has drawn thousands of people to work in the Emirates, after all. All wanting to earn a tax-free salary, not worrying about any deductions from their salaries.
But the latest statement by the IMF’s Deputy Director of Fiscal Affairs Department Abdelhak Senhadji says that the Gulf Cooperation Council countries may eventually be forced to implement income tax and other taxes to balance their budgets in the future, which may pose real challenges to people working in these countries.
“Eventually I think the introduction of personal income tax may be necessary depending on development in the oil markets and also in terms of reforms and what type of yields they provide and how the overall budget looks like,” said Senhadji.
But what do people think about it?
Having their say
AMEinfo asked people working in the UAE about a possible introduction of income tax in the GCC. Here’s what they had to say.
Egyptian Moataz Jad el Hak, a business development manager in Dubai, said that it would be a serious issue if income tax was imposed in the Emirate.
Jad El Hak said that it depended on how much the income tax would be and whether it would be paid by the companies or individuals. He added that many people would not be able to pay the taxes and would be forced to go back to their homelands.
“If income tax is introduced, there should be a reevaluation of salaries at least,” he said. “Otherwise, I would simply return to my country.”
Lebanese Anis Bassil, owner of a private finance and accounting consultancy firm, said that he had no other choice but to stay in the Emirate, even if income tax was introduced. He also said that he would simply try to adapt to the income that he would be generating after paying income tax, if it came into force.
“I know that the cost of living here is high, but we have a good income if we are to compare it with Lebanon,” said Bassil. “In Lebanon the cost of living is too high compared to the income we may be able to generate there.”
For Ghina Itani, a specialist in marketing communication in Dubai, introducing an income tax would be a real disaster. She said that she was capable of affording life in Dubai because she is single, but that if she had a family, she would be forced to move to Abu Dhabi or Sharjah, where the cost of living is lower. Itani added that the cost of living in Dubai is already too high without paying any income tax and that people already started paying an excise tax.
“What if an income tax is introduced? That would be a complete disaster,” she said.
As of October 1, 2017, excise tax came into effect in the UAE at a rate of 50 per cent on soft drinks and 100 per cent on tobacco and energy drinks. Soft drinks include all carbonated/aerated beverages, with the exception of non-flavoured aerated water, as well as any concentrates, gels or extracts that can be processed into soft drinks.
Energy drinks include beverages that may contain stimulants or substances that induce mental or physical stimulation, including but not limited to: caffeine, taurine, ginseng and guarana, as well as any substances with similar effects.
Excise taxes are paid by the individual or entity producing or importing products eligible for the tax. It also affects individuals and entities that stock these products, if they have not been already taxed.
In addition to a possible income tax and the already enforced excise tax, people in the UAE will also have to deal with Value Added Tax (VAT) of 5 per cent at the beginning of 2018.
According to Undersecretary of MoF Younis Haji Al Khoori, the UAE Ministry of Finance announced on Tuesday that it was still in the process of preparing the executive regulation of VAT, in coordination with the concerned authorities.
The Emirates News Agency quoted Al Khoori saying that UAE’s MoF was committed to working with the highest levels of transparency and disclosure principles, and would collaborate with the Federal Tax Authority upon issuing the executive regulation.
“People in the UAE are very much worried about VAT implementation which will take place at the beginning of 2018,” says Itani.
“The new taxes will create a great gap between people and only those who have a very high income will be able to survive in Dubai,” Itani believes.
According to the website of UAE’s MoF, VAT will involve taxation on phone bills, real estate, cars, consumable products, restaurants, houses purchases, hotel accommodations, tickets, house rents in addition to money transfers to other countries.
“Some people were forced to send their families to their homelands due to the high cost of living in Dubai and now they have to pay tax on money transfers to their families,” says Itani.
So far, only the UAE and Saudi Arabia have implemented the necessary laws to implement VAT on January 1st. Bahrain, Kuwait, Oman and Qatar have yet to announce when they will implement the taxes.