Will expats leave if taxed? We ask experts

A tax-free environment in the GCC has attracted many people to work here but this may change if taxes were to come into force, say experts.

“Viewed from the expat point of view, if ever there is tax to come say in small measure (5 per cent or below) then they may take it in their stride and move on. However, if the tax rate were to be significant (say 20 per cent), then they will prefer to move back to home country where compensations have turned very attractive,” M.R. Raghu, Senior Vice President-Research at Kuwait Financial Centre (Markaz) told Emirates 24|7.

Giyas Gokkent, Group Chief Economist at National Bank of Abu Dhabi, too, believes the level of tax would determine the impact. “It would affect the relative attractiveness of working here. Employers may have to raise gross salaries to retain employees. If the tax rate is very low, then the impact would be limited,” he says.

Experts also believe that imposing direct income tax would be premature at this stage. “Given the comfortable fiscal position for many GCC countries, I don’t see the need to raise additional revenues through taxation, especially direct tax like income tax. Hence, I see very little possibility of this ever coming into force," believes Raghu.

"If, however, the government is keen on reducing the number of expats in the country, they may enforce this purely as a means to discourage foreigners from coming into the country. However, kindly note that this can also be achieved through visa controls,” he adds.

Gokkent of NBAD sees VAT more of a reality. “Imposition of a sales tax or VAT is more likely because there already appears to have been some GCC coordination. The burden of the tax would be shared by sellers and buyers depending on the sensitivity of quantity demanded/supplied to price movements,” he told this website.

In a poll run by Emirates 24|7 earlier this month, a majority of respondents said they were opposed to the introduction of taxes. "The moment I have to pay tax, I leave. That is why we are here, we are helping the economy.

Then I'll go back home with my family and pay tax with a smile..." commented a reader who went by the online moniker 'Manic abut Tax'. Another comment was: "If you impose direct taxation on expats then they will leave....simple."

However, it should be pointed out here that while the opinion expressed by this website's readers was largely one-sided, there were some who agreed to the need of such an exercise. "So you're happy to pay 60 per cent of your income in different layers of taxes elsewhere but not enjoy the sun, sand and salary here? I am staying put, even if the tax is 20%. Suggest you do the math too," another reader wrote.

Some readers had their own suggestions too. "I think the solution to have a compulsory zakat payable to the government at the rate of 2.5% on the net wealth. This way they will be a higher revenue and since this is an Islamic country they will be doing the right thing," commented another reader.

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