|By Arabian Post Staff| The route to implementing a corporate income tax in the UAE would appear to be more treacherous and uncertain than the road to VAT, which the government has planned for a 2018 launch. Deloitte said in a report.
UAE, along with other GCC governments are thinking seriously about broadening the corporate income tax bases and increasing rates. But Deloitte points out that the potential economic downsides associated with an increase in tax could very well outweigh the revenues earned as a result of the measures implemented to bring about that result.
In short, taxes on profits are more likely to adversely impact investment behavior and subsequent spill-over effects than taxes on consumption – a point that is not lost on policy makers, the report points out. The “easy” option of growing the corporate income tax base might be sub-optimal when compared to the “harder” option of implementing VAT, it says.
In the context of the UAE in particular, corporate tax also presents a more obvious challenge to the “tax-free” branding that the country has leveraged so well to date. Furthermore, the six individual Emirates that make up the UAE may very well find that a CIT does not sit well with either the long-term local tax exemptions that have been promised to businesses established in increasingly prosperous free-zones or the finely-tuned tax-free economic planning strategies that have been developed over many years.
Deloitte observes that corporate tax reform is an attractive proposition to governments operating within a trading bloc simply due to the relatively simple means by which profits can be unilaterally on-shored and taxed. When one considers that multinationals in the GCC are, most likely, paying taxes on profits generated in the region to their home jurisdiction to one extent or another, there is also a potentially neutral impact associated with the local capture of those revenues.
Compared to a VAT, corporate income tax is more likely to act as a disincentive to businesses considering investment in the region and more negatively impact GDP growth as a result, it says.