Thursday, March 25, 2010
'GCC needs a uniform tax structure'
The GCC needs to have a uniform direct tax structure, such as corporate income tax, to attract more foreign and local investments and accelerate the pace of economic growth, said a top Ernst & Young official.
"We need to have a uniform corporate tax structure, apart from one currency in the GCC. A uniform tax structure will have many advantages for the economies of the region, as it'll give equal chances for investors, equal chances for employment and facilitate easier movement of goods and people within the region, among others," Sherif El Kilany, Managing Partner (Tax Services), Ernst & Young Middle East, told Emirates Business on the sidelines of the 'Middle East Tax Conference 2010' in Dubai.
He said the UAE continues to be a tax haven in the region as it does not impose a federal corporate income tax unlike other Gulf countries, except Bahrain.
"Many multinational firms want to be in Dubai or Abu Dhabi, where many big global companies are already present," he said.
Oman, Qatar, Kuwait and Saudi Arabia have in recent years initiated tax reforms by reducing the corporate tax rates. For instance, Kuwait has reduced corporate tax from a high of 55 per cent to 15 per cent, Oman from 30 per cent to 12 per cent, Qatar from 35 per cent to 10 per cent and Saudi Arabia from 30 per cent to 20 per cent.
However, Kilany said apart from reducing corporate income tax rates, Gulf countries need to bring in a parallel reform in tax administration as well.
"Tax reforms have been happening in various countries in the Middle East but some more changes are needed to help businesses. Along with reducing tax rates, tax authorities also need to take steps to address the challenges that come with it," he said.
He said the problem has been the fast-paced tax reforms without adequate administrative changes.
"The approach should be bottom-up than top-down," he said.
There is a need to increasingly adopt adequate tax administration structure, training of tax administrative staff, proper accounting systems, compliance requirements and uniformity in transfer pricing rules.
The UAE and Bahrain are tax-free jurisdictions. No corporate income tax, capital gains tax or withholding tax rates are imposed by the UAE Government, although most of the individual emirate have issued corporate tax decrees, which theoretically apply to all businesses established in the UAE.
But in practice, taxes are imposed only on foreign oil and gas production activities at rates set forth in private concession agreements entered into by the foreign oil company and the particular emirate, and on branches of foreign banks at rates either in a specific tax decree or in an agreement with the emirate in which the branches operate, according to a Ernst & Young report.
Similarly, except for certain taxes imposed on oil companies and certain social insurance taxes, Bahrain levies no taxes on income, capital gains, sales, estates, interest, dividends, royalties or fees.
In Bahrain, the corporate income tax on the profits of companies engaged in the exploration, production or refining of oil in Bahrain is levied at a rate of 46 per cent, according to Ernst & Young.
Kilany said there is no need to move ahead on the indirect tax front, and it was a good decision not to implement Value Added Tax (VAT) in the region a couple of years back.
"There were lots of talks going about introducing VAT a couple of years back, but had it been introduced the inflation would have reached at an unbelievable level because many of the Gulf economies were already facing a high inflation rate," he said.
emirates24/7
