The United Arab Emirates has shunned calls from the International Monetary Fund to introduce income tax.
The Middle East state has an economy heavily reliant on exporting oil and gas, but price falls over the past two years have seen the wealth drain away.
To combat the decline in revenue, the governments of Abu Dhabi, Dubai and several smaller emirates have tried to expand their economies into new sectors, such as financial services.
But earlier this year IMF managing director Christine Lagarde spelled out that the time was near for the UAE and other Gulf States to stop living off oil and to start levying taxes.
Expats flock to the UAE, which is famous for charging no corporation tax on business profits not any income or capital gains taxes on individuals.
New federal tax authority
The UAE has agreed with the six other Gulf states to impose VAT from 2018 at a standard rate across the region, but that’s as far as tax raising will go.
Younis al-Khouri, under-secretary at the finance ministry has clearly stated that the government is not considering any form of income tax.
His announcement follows the approval of next year’s $13.3 billion federal budget for next year.
The announcement also confirmed that the government had no intention of levying taxes to support the budget and that further falls in the price of oil would not impact spending.
However, the future for business tax looks less clear.
The UAE is setting up a federal tax authority after a review of the social and economic impact of corporation tax. The under-secretary agreed this was a first step towards imposing a tax regime on the country for the first time.
Call for taxes ignored
The finance Ministry has advertised for 30 tax professionals to run the authority.
Meanwhile, Saudi Arabia is mulling an income tax charge for expats, while Kuwait has announced a 10% corporation tax rate on profits for businesses.
Lagarde called on Gulf leaders to introduce tax to raise revenues to replace some of the lost oil and gas cash.
“The size and likely persistence of this external shock means that all oil exporters should adjust by reducing spending and increasing revenue,” said Lagarde. “Most Gulf States are in a position where they can pace their adjustment over several years and therefore limit their impact on growth.”