Interview: Obaid Humaid Al Tayer
What can be done in policy terms to fund upcoming mega-projects and deal with the risks low oil prices pose to the UAE’s federal budget?
OBAID HUMAID AL TAYER: The UAE Ministry of Finance has implemented a solid diversification policy in order to expand federal government resources. The ministry conducts studies into the expected income from various revenue sources, to determine what to remove, modify and implement in regards to government service fees. The federal government is also committed to implementing development and service projects related to health, education and infrastructure.
The main revenue sources for the federal budget include income collected by ministries for services provided to entities and individuals, contributions from the various emirates, franchise rights and investment returns. The ministry has also continuously supported small and medium-sized enterprises (SMEs) over the past 10 years. Current statistics show that the UAE has around 300,000 SMEs, which represent 92% of all companies and provide 86% of jobs in the UAE market. These SMEs contribute up to 60% of the UAE’s GDP. The National Agenda, established to help the country achieve its UAE Vision 2021, is designed to ensure that SMEs’ contribution to non-oil GDP reaches 70% by 2021.
How might any negative impacts arising from the value-added tax (VAT) draft law be mitigated?
AL TAYER: The Ministry of Finance has conducted a number of studies, the most recent of which was completed in early 2015, on the economic and social effects of imposing taxes in the UAE for 2008, 2010, 2012 and 2014. The studies allow us to determine the impact of taxes on the growth of the regional economy and the UAE’s global competitiveness. They also provide a review about best international tax practices, so as to reduce any burdens for both companies and the tax administration in the emirates.
The UAE will not impose taxes without having come to a final agreement with all GCC countries. This is due to a prior arrangement established between the UAE and GCC countries, which stipulates that taxes will be applied simultaneously to all GCC nations.
In regards to the tax rate to be imposed and the list of exemptions, the draft VAT law is still under discussion with GCC countries. Concerned sectors and entities will have 18 months after the law is imposed to fulfil the requirements of their tax obligations.
Which policies are being developed to ensure that introducing corporate tax does not negatively impact the UAE’s appeal to investors?
AL TAYER: Due to the country’s economic openness, the UAE, on a local and federal level, has managed to lay strong foundations for an attractive economic environment. The ministry, in collaboration with a number of government entities, has conducted periodic studies into the impact of imposing corporate taxes on companies operating in the UAE.
Further updates about the draft law on corporate tax will be announced in due time. When completed, concerned entities will have a year to fully prepare for the implementation and fulfilment of their tax obligations after the issuance of the law.
To what extent might sovereign debt issuances in the region and talk of further sales encourage the corporate sector to follow suit?
AL TAYER: The UAE federal government has decided that there is currently no need to issue any sovereign bonds. As such, the Ministry of Finance will continue to study all aspects of the debt law, as per the federal government’s guidance. If there is some need to issue a sovereign debt bond, the first issuance will take place after the end of the preparation phase, which takes up to 18-20 months and includes the adoption of a federal law for public debt.
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