Dubai: Middle East countries have to come up with creative financing regimes to meet ballooning demands for services and infrastructure by a growing population.
One revenue stream that is keeping the wolves from the door in the region is a user-pays system that generates enough income to head off exacting personal income taxes for residents.
Housing fees, road tolls, parking fees and charges imposed on things like theatre tickets, hotel bookings and evening refreshments help pay down the costs of providing basic services in Dubai.
Aref Abdul Rahman Ahli, director of the Finance Department at Dubai Municipality, told Gulf News that revenues generated from user fees remain stable year on year providing the municipality with a critical source of funding.
"These fees are important because they help run the city," Ahli said in an exclusive interview from the municipality offices in Deira.
Fees collected from residents and tourists throughout the year enable the municipality to pay for infrastructure such as "bridges, streets, drainage and parks," Ahli said.
Figures provided by Dubai Municipality show that 2010 revenue from fees amounted to Dh4.75 billion, a slight increase from the Dh4.56 billion collected in 2009.
The fee revenue collected in the last two years, however, is below the 2008 figure of Dh4.96 billion, the final year of the boom period in Dubai, statistics from the finance department reveal.
The top 10 sources of revenue, Ahli said, stem from various sectors in the Dubai economy including: fees charged by the municipality for hotel bookings, market fees, housing fees, drainage operation fees, drainage connection fees, general cleaning fees, hotel apartment fees, medical reports, planning fees as well as solid waste fees.
Revenues collected help the municipality carry out essential services in Dubai, Ahli said.
For example, the municipality routinely inspects restaurants and supermarkets "to verify its [food] safety for human consumption and that it is free of any pollutants," he said.
In addition to covering the costs of pest control and public health services, fee revenues pay for control measures to protect the air and marine environments in Dubai from pollution.
Sanitation and landscaping
Keeping the city clean is imperative and fees help provide "a sound waste disposal methods through providing locations for recycling and landfilling."
User-pay revenues also cover the cost of "maintaining cleanliness of streets and roads that benefit the whole emirate" as well as "landscaping services for the emirate's parks and green spaces in general and all gardening and agriculture associated with it."
Dean Rolfe, tax partner, Middle East Tax Leader, PricewaterhouseCoopers said as costs to provide infrastructure in future increase, some countries in the Middle East may look more closely at public-private partnerships.
"Infrastructure spend by governments may follow the international model of public-private partnerships or pay-to-use systems such as tolls on roads. Privatising infrastructure projects has been the trend globally to deal with these challenges," Rolfe told Gulf News.
A few countries in the region have levied a small amount of corporate tax but have avoided personal income tax on individuals, he said.
The UAE, for example, levies up to 55 per cent tax on oil companies as well as 20 per cent tax on foreign banks operating within the country.
"The introduction of any tax is a sensitive matter and depending upon the tax being considered, introducing new taxes is an unpopular decision which will likely be questioned. For example, personal income tax was introduced in the kingdom of Saudi Arabia some time ago and it was suspended after one day due to the unexpected public backlash," Rolfe said.
"Given this experience, it is unlikely that governments in the region would introduce personal income tax especially when one considers that the absence of personal income tax presents the Middle East region with a competitive advantage in attracting experienced, educated and specialised human capital from abroad."
Dr Armen V. Papazian, financial economist and chief executive officer of Keipr, a business analytics and intelligence firm, said tolls and fees help fund public services.
"The region has a series of indirect taxes in the form of fees and service charges. Adding taxes to the monetary dynamics might be hard at this stage as the key value proposition of the region lies in its tax-free feature," Papazian told Gulf News.
Paying Taxes 2011, the latest report by the World Bank and the International Finance Corporation, conducted by PricewaterhouseCoopers studied tax regimes around the globe and ranked the UAE as the fifth country in the world of 183 economies surveyed for its "ease of paying taxes".
The UAE was ranked even higher, earning second place of all global economies studied, for the shortest time needed to file tax documents. "Other economies, such as Qatar, the UAE, Saudi Arabia and Oman, are resource-rich economies that raise most public revenue through means other than taxation," the study reported.
Those other means are primarily user fees, a primary source of income for Gulf Cooperation Council countries where only those people utilising a service are paying to help support the desired infrastructure or government and business services.
According to International Monetary Fund (IMF) data, of the UAE's total 2009 revenues of Dh292.6 billion, roughly three quarters of the income (74.3 per cent or Dh217.5 billion) came from hydrocarbon sources.
Non-oil revenue amounted to 25.6 per cent (Dh75 billion) of which, 4.3 per cent of revenue was collected through "fees and charges".
The remainder of non-oil revenues was drawn from customs duties (2 per cent), profit transfers (6 per cent), income tax (0.3 per cent on corporations), investment income (6.3 per cent) and other (6.7 per cent) revenues.
Assurances
Meanwhile, leaders have assured residents of Dubai that the emirate will not resort to new taxes in these difficult times. Nor will it impose income taxes to cover its public service and infrastructure expenses, officials insist.
Lieutenant General Dahi Khalfan Tamim, a sitting member of Dubai Executive Council and Dubai police chief, told Reuters in January: "There will be no taxes at all."
Seen as a necessary evil in western countries to pay for so-called free public services such as health care and education, tax regimes so common elsewhere simply aren't welcome in Dubai and in neighbouring emirates that make up the UAE.
Dubai's no-tax approach, some argue, has led to its explosive economic growth in the last decade. Indeed, the marked absence of personal income tax and retail, goods and services taxes is a central plank in Dubai's world reputation as an evolving world business centre anchored by no-tax incentives.
The strategic plan appears to be working judging by surveys in which Dubai has earned mentions as a serious new player on the world stage up against longstanding world centres such as New York, Hong Kong and London.
In a 2007 Mercer taxation study, Dubai ranked at the top as one of the globe's most favourable tax-free places to live and work.
According to Mercer, UAE residents received the largest portion of their net income in the world at roughly 95 per cent of their gross monthly salary.
Mercer said workers who migrate to emerging economies are choosing to work in tax-free jurisdictions to save cash at a faster rate than they ever could in western countries such as America and Canada, which exact a basic income tax rate according to salary earned.
Markus Weiner, head of operations in Dubai for Mercer, said: "We often find that the UAE's zero-taxation is a strong draw for expatriates on short-term assignments. For three to five years, young professionals can fast-track their savings to afford a mortgage when they return home while senior executives can maximise their savings potential ahead of retirement."
Dubai topped the Middle East and Africa region's list of cities with the best quality of living last year, according to the business consultant Mercer 2010 Quality of Living Survey.
"As the world becomes more globalised, cities in many emerging markets, such as in the Middle East or Asia, have seen a significant influx of foreign companies and their expatriate employees in recent years," a Mercer spokesman said.
Where it comes from
Dewa Housing Fee: 5% of annual rent
Social security tax: 5% (for UAE nationals)
Foreign bank tax: 20%
Oil company tax: up to 55%
Salik road toll: Dh4
National ID: Dh100 per year of visa stay
Car registration: Dh385
Parking fees: Dh2 per hour
Top 10 Dubai Municipality Revenues
- Hotel fees
- Market fees
- Housing fees
- Drainage operation fees
- General cleaning services fees
- Hotel apartment fees
- Drainage connection fees
- Medical report fees
- Planning and construction fees
- Solid waste fees
Source: Dubai Municipality