UAE rules out imposing income tax despite budget deficit

Added 3rd November 2016

The United Arab Emirates has ruled out the imposition of any income tax on individuals as its seeks alternative sources of revenue to counter the impact of falling oil prices on the government’s budget.

UAE rules out imposing income tax despite budget deficit

Younis Al Khouri, the under-secretary at the UAE Ministry of Finance, told local media this week that the government’s latest budget would not rely on new taxes or additional fees, or revenues from value added tax (VAT).

Governments across the Gulf have been looking at fresh ways to raise money as low oil and gas prices open up big deficits in state budgets. In 2018, the six members of the Gulf Cooperation Council plan to introduce VAT.

The UAE swung into a deficit of 2.1% of GDP last year after oil prices lost more than half their value in 2014.

The country is forecast to post a deficit of 3.9% of GDP this year, and a 1.9% next year, according to IMF estimates.

However, Khouri’s remarks appeared to rule out, for now at least, the possibility of imposing personal income tax on UAE residents to plug the gap.

He told local media that projects in the budget would not rely on new taxes or additional fees, or revenues from VAT, adding that the budget will not be affected by changes in global oil prices.

The government this week approved an AED48.7bn ($13.3bn) federal budget for 2017 as part of a five-year economic plan focused on social development, education and health.

On corporation tax, Khouri said the finance ministry had for years been studying the social and economic impact of it, and was now taking those studies to the cabinet, with a view to building a comprehensive tax regime.

He did not elaborate on any possible changes to corporation tax but said an initial step in developing the tax regime had been taken with the recent decree from president Sheikh Khalifa bin Zayed al-Nahyan’s setting up a new federal tax authority.

The IMF has forecast that the UAE’s cumulative fiscal deficit will reach $18.4bn between this year and 2021 as low oil prices reduce government income.

West Texas Intermediate, the US oil price benchmark, was down 1.5% on Wednesday to trade $45.96 per barrel compared with prices of over $100 a barrel in the middle of 2014. 

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