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UAE tops global ranking in fiscal freedom

The UAE has been rated among the top 50 economically freest countries in the world (FILE)

By Sunil Kumar Singh

The UAE has been rated as the fiscally freest economy in the world, jointly with Kuwait, scoring 99.9 out of 100, according to the 2011 Index of Economic Freedom that was released on Wednesday by the US-based The Heritage Foundation and The Wall Street Journal.

The Index of Economic Freedom covers 183 countries across 10 specific freedoms, namely, trade freedom, business freedom, fiscal freedom, investment freedom, government spending, property rights, monetary freedom, financial freedom, freedom from corruption and labour freedom.

Fiscal freedom is a measure of the tax burden imposed by government. It includes both the direct tax burden in terms of the top tax rates on individual and corporate incomes and the overall amount of tax revenue as a percentage of GDP, The Heritage Foundation said in a report.

It said the UAE has no income tax and no federal-level corporate tax, but there are different corporate tax rates for certain activities in some emirates. In general, foreign banks are taxed at 20 percent. Oil companies are taxed at 50 percent in Dubai and 55 percent in Abu Dhabi.

There is no general sales tax, although a value-added tax (VAT) is planned. Property transfers are subject to taxation. In the most recent year, overall tax revenue as a percentage of GDP was nearly negligible at 1.8 per cent, the report added.

In fact, the GCC region leads the world in fiscal freedom with the top 6 spots being occupied by 6 GCC countries.

The UAE and Kuwait are closely followed by Bahrain, Qatar, Saudi Arabia and Oman respectively in fiscal freedom.

Overall, the UAE has been rated among the top 50 economically freest countries in the world according to the 2011 Index of Economic Freedom.

The UAE’s overall economic freedom score is 67.8 (out of 100), making its economy the 47th freest in the 2011 Index. Its score is 0.5 point higher than last year, reflecting improvements particularly in freedom from corruption and monetary freedom, the report noted.

Overall, Hong Kong has topped the ranking globally scoring 89.7 making its economy the freest in the 2011 Index. Hong Kong is followed by Singapore, Australia, and New Zealand respectively as the second, third and fourth freest economies.

Bahrain has been ranked the 10th freest economy in the world, making it the only country from the Middle East North Africa (MENA) region to rank among the top 10 freest economies. Bahrain is followed by Qatar and Oman respectively in the ranking within the GCC region.

The UAE is ranked 6th out of 17 countries in the MENA region, and its overall score is higher than the world and regional averages. In the GCC, the UAE is ranked ahead of Saudi Arabia and Kuwait.

In the business freedom parameter, which is a quantitative measure of the ability to start, operate, and close a business that represents the overall burden of regulation as well as the efficiency of government in the regulatory process, the UAE scored 67.3 (out of 100), slipping marginally by 0.1 point from the 2010 ranking.

While starting a business in the UAE takes less than half the world average of 34 days, licensing requirements are less time-consuming than the world average of 209 days, the ranking report noted.

In trade freedom, a composite measure of the absence of tariff and non-tariff barriers that affect imports and exports of goods and services, the UAE’s score is 82.6 (down 0.2 point from earlier ranking).

In government spending, the UAE’s score is 79.1 (down marginally by 1.8 point), while in monetary freedom (that combines a measure of price stability with an assessment of price controls) the score moved 7.7 points up from previous ranking to 76.5.

Score in investment freedom remained unchanged at 35. So was the case with financial freedom and property rights with scores of 50 each. In freedom from corruption category also, the UAE scored better than the last ranking with 65 points  (up 6 points from last ranking).

Labour freedom however saw the sharpest fall from last ranking with score dipping 6.9 points to 72.4. The UAE’s employment regulations are relatively flexible, the report noted. The non-salary cost of employing a worker is moderate, but dismissing an employee is relatively costly, it said, adding, a new labour law, which aims to further streamline contracts, has been proposed.

The UAE’s broader-based growth in recent years has been underpinned by efforts to strengthen the business climate, boost investment, and foster the emergence of a more vibrant private sector, the report added.

The generally liberal trade regime has helped to sustain momentum for growth. The UAE aims to be a regional financial hub, and its banking sector has handled the recent financial turmoil well. The level of corruption is relatively low, it said.

Switzerland took first place among the European nations, claiming the No.5 spot in the world rankings. Ireland, the previous fifth place holder, dropped to a seventh place finish. Iceland’s score plunged by 5.5 points – the most of any country last year; it plummeted to 44th place in the global rankings, from 18th place in the preceding year.

Canada retained its top ranking among North American states, moving up one slot in the world rankings to sixth. Meanwhile, the United States lost ground, with a ninth place finish.

Overall, the Index registered a widespread rebound for 2010, as the average score increased to 59.7 from the 59.4 registered in 2009. More than half the 183 countries listed in the Index improved their scores, the report said.

Scores had declined for the previous two years as countries responded to the global financial crisis with increased spending and regulations.