UAE Considering Taxes as fiscal reforms

Due to the decline of oil prices, many Middle East and North Africa (MENA) countries have implemented various kinds of subsidy reforms aimed to increase government revenues.

Analysts support the MENA should implement an effective tax regime and cut down on expenditure in order to compensate on the oil revenue losses and increase government funds.

MENA governments are considering introducing new taxes aimed to increase their funds to maintain both economic and social stability. Currently, financial policy ideas aim to increase government revenue, enhance investment concerning projects that generate added value on the existing gas and oil export plans as well as boost investment flows towards non-oil and gas based fields. The majority of MENA countries have undertaken large infrastructure projects including electricity, transport, industrial facilities, water, seaports and rail.

The MENA governments acknowledge the significance of using tax policies to motivate international companies to set up within the region. The decrease in oil prices, and the fact that oil prices may remain low, has influenced countries that usually spend large amounts on infrastructure projects. Countries throughout the region are facing budget deficits because of the loss of oil and gas profits and are now considering introducing new tax schemes to increase their revenue.

GCC countries as well as Egypt are considering introducing VAT. The UAE has recently reported they are working towards introducing a corporate tax and VAT. The GCC have been considering introducing a VAT for many years. Many experts believe that the decline of oil prices, which has led to the loss of revenue, is the incentive the GCC countries needed to introduce a VAT.

It is expected that the new tax regimes will be introduced over the following two to three years. Initially the tax rates will be low and will increase over time. The tax revenues will aid governments make up for the loss of oil revenue.

Countries within the region are concerned that the introduction of taxes will influence their investment inflows and competitiveness. However, experts argue that the implementation of indirect taxes will not affect investments.

Indirect taxes will be added on the price of goods and services. This means the end-consumer will be subject to pay tax on the goods and services he/she consumes. Therefore, the tax imposed will be passed from the business to the consumer, meaning the tax will not influence a business planning to set up in the area.