13 April, 2006

Invisible Tax

(Originally posted at BuJ Al Arab)

"Dubai has no tax"

Such naive statements are not valid in today's world, and should be limited to the history books that describe our great city.

This article on today's Gulf News confirms it: http://gulfnews.com/nation/Housing_and_Property/10032714.html

For UAE residents, life has been tough. Rising costs for virtually everything has meant that the spending power of individuals is going down. From increasing rent, to fuel costs (30% increase last year!), to rising healthcare costs, to rising school fees, and the list goes on...

However, there is still no direct official income tax or VAT in the UAE (please correct me if I am wrong). I believe this has serious effects on Dubai and the UAE's growth plans for the future.

I know for a fact that UK engineering companies are finding it extremely difficult to tempt their UK staff to work in their Dubai offices. Rising costs is an obvious reason.

These proposals by DM are very similar to current Council Tax in place in the UK where people pay a percentage of their house's worth every year as a tax to the local council (not central government). This pays for roads, police, rubbish collecting etc.. in the local area.

Council Tax has been in the UK for a while now, and is becoming increasingly unpopular, as with the even more unpopular Poll Tax before it. What do you think are the consequences of this 5% tax on property? How does this tie in with Sheikh Mohammed's promise not to introduce VAT?

Where we go from here needs to be studied very carefully. Your thoughts?


John B. Chilton said...

My colleague, Hugo Toledo, gives his take here: MELA

Keefieboy said...

I am mystified by this story. The 5% municipality tax has existed for the last 30 years, but DM haven't been very good at collecting it - although they always managed to get it from us. For the last year or so it has been added to our DEWA bill, so there's no escape.

I think the news report was a bit shady, trying to present it as a new burden for Dubai residents.

BuJ said...

there are a lot of laws which exist but do not get used to the full extent. they are more of a deterrent rather than a punishment.

anyway i don't know much about this subject which is why I posted, and that's to gauge opinion.


trailingspouse said...

What is this tax for? All over the world people hate paying taxes, but governments usually at least have the courtesy to tell us what we are paying for.

As keefiboy points out this tax has been around for a long time, but the municipality has only recently got serious about collecting it.

Basing it upon rent (or purchase price) of a property at the time you apply for a DEWA connection is totally inequitable. If I rented an apartment in Feb 2005 my housing fee is based on the rent at that time. Someone renting a similar apartment in Feb 2006 will probably pay 40% more due to rapidly rising rents.

If I stay in the same apartment for 10 years will my housing fee remain the same? Surely the government will want to raise their revenue at some point to cover inflation - what will be the mechanism?

Either we are being deliberately kept in the dark, or DM just haven't thought this through.

With rents still spiralling out of control and companies burying their heads in the sand (no pun intended) when it comes to cost-of-living increases, it is a very bad time to be adding to the financial burden of the workforce.

John B. Chilton said...

keefieboy - I noted the 1962 when reading the article and am grateful for your telling us, contrary to the impression from reading the story, that it has been collected by DEWA some times from some people.

What I have heard over the years is that some people never pay the electric, gas and water part of their bills and DEWA (likewise in other Emirates) does not try to collect. It depends on who you are, I'm told.

The way some use water and electricity - as if it were free - makes sense: it is free to them. If this story I've been told is true.

I wonder what insight commenters can add on this. And does the assertion that the 5% will be collected also apply to the rest of the bill?

In New York City some incredible percentage never pay their utilities. The city has tightened up some, but the reason they don't pay is that the utilities don't pull the plug on them - legal issues.

Anonymous said...

P.Toledo has brought a very important point to the discussion.I believe that the outcome of rent increase is people moving to Sharjah and Ajman,but the question is why?Why are they doing this.Take a look around Sharjah and Ajman,the closest states to Dubai.Rents are increasing in sharjah,and land right next to the university city is becoming very expensive due to increasing demand(land in those areas are mostly owned by the government).Revenues generated are put to build the roads connecting Dubai,Sharjah and Ajman,decreasing the traffic in the morning and evening,thus making life in those areas more appealing(plus releaving the Sharjah government from its budget exaustion due to this university city's projects "mainly the library i suppose!").I believe this justifies the huge projects in process in Ajman,which will be set to accept those transfering to it from Dubai.Overall,rents will increase in those 3 states,and i believe more revenue will be generated.

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