Emirates tops study for ease of paying tax

The UAE pipped Saudi Arabia and Qatar to top the list in a World Bank study on taxes. Silvia Razgova / The National

The UAE has leapfrogged other Arabian Gulf states to claim the top spot in a World Bank study that measures the ease of paying taxes.

Gulf economies always score highly among the 185 countries surveyed because they have little or no corporate income tax.

Qatar and Saudi Arabia came in second and third place overall, with the UAE advancing from sixth to first place thanks to improvements made in online payment systems.

The Paying Taxes report co-authored by the International Finance Corporation and PricewaterhouseCoopers (PwC) ranks countries according to their overall rate of taxation, the time it takes to comply with tax rules and the number of payments required over a year.

The report found that the average total tax rate for the Middle East was the lowest globally, at 23.6 per cent of profits - well below the world average of 44.7 per cent. Labour taxes and social contributions form the largest part of taxation in the region.

Plans to increase taxation and introduce value-added taxes in some parts of the region have taken a back seat following the Arab Spring.

But increased government spending after regional political upheaval could heap pressure on some countries to cast the taxation net wider among corporations.

Such levies could help to pay for increased social spending and to plug the budget deficits that may follow.

"With increased spending requirements and populations demanding greater economic rights, governments in the Middle East will face a challenge to raise additional tax revenues in the future, either by introducing new taxes, expanding the tax base or increasing tax rates," said Dean Kern, PwC's Middle East tax leader.

The report reveals it took just 12 hours to comply with UAE taxes compared with a global average of 267 hours and a Middle East average of 158 hours.

Iran was the slowest place to pay taxes in the Gulf, taking on average 344 hours to complete.

The total tax rate has fallen by about 2.5 per cent in the region over the past six years.

The index measures all mandatory taxes and contributions a medium-sized firm must pay, such as social contributions and labour taxes, as well as levies applied to property, capital gains, financial transactions and roads.

While the UAE finished ahead of Qatar and Saudi Arabia in the overall rankings, its two neighbours scored lower overall tax rates.