Effects of No Income Tax Policy on Dubai's Economy Essay

Effects of No Income Tax Policy on Dubai's Economy - Essay Example "Dubai has changed dramatically over the last three decades, becoming a major business center with a more dynamic and diversified economy. Dubai enjoys a strategic location and serves as the biggest re-exporting center in the Middle East. The city now has thriving manufacturing, finance, information technology, big choice of Dubai property and tourism sectors and is home to numerous multinational companies such as AT&T, General Motors, Heinz, IBM, Shell, and Sony."1 In Dubai there are no personal taxes other than import duties (mostly at rates up to 10%), a 5% residential tax assessed on rental value, and a 5% tax on hotel services and entertainment.1 Being an oil-rich country, the government is not dependent on direct taxation as a source of its revenue and thus, there is no income tax. This attracts not only petty businessmen but multinationals too to invest in trading opportunities in the country. It has been noted that while tourism has grown exponentially in the last ten yeas, p eople are also looking forward to investing in property in Dubai. Since investing anywhere else in the world would attract taxes from the government: both direct and indirect, both during purchase and sale of land; foreign nationals, especially western Europeans are attracted to Dubai as an investment center. The government has made huge investments in hotels, leisure and recreational facilities to attract a large number of tourists, who might later be interested in buying property. This would attract people not only for business but also for buying property and migrating to Dubai. For an economy that was primarily dependent on its oil reserves, this would be a boon. With more and more investment in both people and land by foreign companies and high net worth individuals, the economy is all set to grow. Manufacturing industries have been set up in sectors like beverages, chemicals, paper, pharmaceuticals and rubber. As the diversity of the population grows, so would the needs and a necessity to increase economic activity. Thus, the no income tax policy followed by the Dubai government has benefited the economy immensely. Can other gulf states emulate this policy Is it feasible Yes or No Other gulf states can emulate this policy to a certain extent. While most countries like Oman and Saudi Arabia are already following a No Income tax policy, there are certain restrictions on investment in property by foreign nationals. Not all governments might be as open to change as the government in Dubai. There could be a small fear lurking in the minds of the authorities of being overpowered or misused by vested interests. Investment in land by a foreign national is allowed only in partnership with a local company or individual in some gulf countries. This might have been followed to safeguard the interests of the local population. "Free capital movements raise concerns about the loss of national sovereignty and other possible adverse consequences. Foreign direct investment ("FDI") even more so than other types of capital flows has historically given rise to such concerns, since it may involve a controlling stake by multinational corporations over which domestic authorities, it is feared, have little power."2 "Islamic law goes into great detail about family, inheritance, foundations, property rights and obligations, and public law operates along with rules of usage