UAE has 'no income tax plans' says senior government official

A feature about tax in a local newspaper caused a flurry of debate among residents

The extension applies both to companies that file tax returns monthly and quarterly. Alamy Stock Photo

The UAE has no plans to introduce income tax and will not hike VAT in the next three years, a senior government official said.

Younis Al Khouri, undersecretary at the Ministry of Finance, spoke after a local newspaper article sparked a flurry of debate among some social media users.

The Emirates and Saudi Arabia introduced 5 per cent VAT on many goods in January 2018 to boost non-oil revenue. The UAE will not look at hiking tax until 2023, five years after it was introduced, he said.

“There are no plans or decisions to raise VAT or impose new taxes in the near future. There is no validity [in the suggestion] on direct taxes or increasing VAT,” he told Arabic language media on Thursday.

"Since the introduction of the VAT, it was decided that there will be no increases to the VAT rate for 5 years, after which the matter will be reviewed and an appropriate decision taken."

In September, the International Monetary Fund urged Riyadh to double VAT to 10 per cent, sparking a debate about levels of tax and plans for the future. A local newspaper feature this week quoted senior tax consultants including KPMG as saying higher VAT and income tax would eventually be introduced in the Gulf.

"In 10 years, we expect wealth, property and asset taxes can be levied in the region because it is not that the governments want to impose but because they will have to. They will come gradually and take time," Dr Rasheed Al Qenae, head of tax at KPMG Middle East and South Asia, told Khaleej Times.

"Now governments are focused on introducing value-added tax across region. Once that is stabilised, they will think about others."

The UAE government made Dh27 billion in VAT revenues in 2018, more than twice its original forecast of Dh12 billion.

Dr Al Qenae said a tax on luxury goods was more likely to follow in the coming years than income tax.

There are significant challenges in administering personal income tax, particularly from scratch.

Many countries use a system known as pay-as-you-earn, which effectively involves employers telling the government how much their employee earns and deducting an amount from their pay packet each month. Most have progressive tax brackets to ensure higher earners pay more.

Three countries - Estonia, Latvia and Russia - have a flat rate tax that sees every resident pay the same, which is thought to save the government billions in tax collection.