UAE tax system world's least demanding

The Middle East region has both the lowest average 'total tax rate'- and the lowest average time to comply of all the regions. - AFP

The UAE and Qatar share equal first place globally as the easiest countries to pay taxes while as a region, the Middle East enjoys the least demanding tax system, ranking consistently below the world average, according to PwC and The World Bank Group.
The Middle East region has both the lowest average "total tax rate" and the lowest average time to comply of all the regions, the latest edition of Paying Taxes 2017 report said.
A UAE case-study company, according to the report, has an average Total Tax Rate of 15.9 per cent and it takes the company an average of 12 hours to comply with its tax affairs and it makes an average of four payments.
In the Middle East, the case-study company has an average Total Tax Rate of 24.2 per cent while it takes the company an average of 157 hours to comply with its tax affairs and it makes an average of 17.1 payments.
On a global level the Total Tax Rate decreased by 0.1 percentage points to 40.6 per cent; time to comply declined by eight hours to 251 hours; and the number of payments by 0.8 to 25 payments.
The report finds that economies around the world continue to make progress in simplifying and reducing the burden of tax compliance on businesses. Globally, the most common feature of tax reforms in the past year was the introduction or enhancement of electronic systems for filing and paying taxes.
Dean Kern, PwC Middle East tax and legal services leader, said in many economies, governments and tax authorities can make it easier for companies to pay their taxes and this includes the ability to claim a refund or deal with a corporate income tax audit. "More efficient tax systems are good for businesses which in turn help to promote economic growth and investment."
Jeanine Daou, partner and Middle East leader for indirect taxes and fiscal policy, said stable tax systems and strong tax administrations are important for businesses, helping them to operate in an environment where the tax treatment of transactions is predictable and where governments operate transparently.
"In addition, the way in which the tax system collects and administers its taxes has an impact on businesses in terms of the time required and the costs associated with that time."
Labour taxes and mandatory contributions paid by employers account for 60 per cent of the average Total Tax Rate for the Middle East region and is the most significant contributor to the Total Tax Rate in most economies. Profit taxes account for 38 per cent, while other taxes account for just two per cent of the region's average Total Tax Rate.
Similarly, labour taxes and social contributions paid by employers account for 56 per cent of the time to comply and 61 per cent of the number of payments sub-indicator.
The average number of payments sub-indicator for the region is 17.1 payments, which is below the world average of 25 payments. This is largely because of the low average number of taxes in the region for the case study company.
The Middle East region performs comparatively less well on the post-filing index than on the original three sub-indicators. The post-filing index score for the region is 66.26, the third most efficient of all the regions, and more efficient than the world average of 61.24. However, the region underperformed the global average in all four components of post-filing index.
Only 5 of the 13 economies in the Middle East have VAT (value added tax) systems and in four of those a VAT refund is available to the case study company. Where an economy has no VAT system, the VAT components are omitted from the post-filing index score.
- issacjohn@khaleejtimes.com