Income breakdown: A look at the government’s main revenue streams

Total government revenues for Dubai have quadrupled from Dh10bn ($2.7bn) in 2003 to an estimated Dh42bn ($11.4bn) in 2011, according to the IMF. The 2011 figures include an estimated Dh10bn ($2.7bn) in cash transfers from Abu Dhabi. Expenditures have been traditionally balanced to control the budget deficit, but the financial crisis in 2008 prompted the need for economic stimulus. The year 2009 saw the largest budget deficit of the decade, when the government created the multibillion-dollar Dubai Financial Support Fund to help restore investor confidence and stabilise the economy. During this time, government expenditures stood at Dh92bn ($25bn), while revenues remained at just over Dh40bn ($10.9bn).

TAX SYSTEM: The UAE does not impose an income tax on wages and salaries. While each emirate has the authority to change this policy, none currently do so. Oil companies pay one of the highest tax rates in Dubai as they are subject to a 55% tax in addition to paying royalties. However, oil is a minor contributor to Dubai’s GDP, with total government revenues from oil and gas adding up to just over Dh5bn ($1.4bn) in 2011, according to the IMF. Foreign banks are also subject to a 20% corporate tax on profits earned in Dubai. Hotels and entertainment venues pay a 5% municipality tax for rooms, food and other services. Import taxes on luxury items, including those shipped through the free zones, is 10%, while all other imports are taxed at 4%. While they are not taxed, many government related entities also pay the government royalties. Finally, alcohol, which is not widely sold outside hotels, attracts a 30% sales tax in Dubai.

In total, revenues from these taxes were only Dh7bn ($1.9bn) of the government’s accounts in 2010. While this is a major increase from the Dh1.9bn ($517m) in 2003, it still represents only 17% of government income. Dubai therefore depends on other revenue streams to finance its annual budget.

REVENUES: The 2013 budget, approved at the start of 2012, offers some insight into these revenue streams. Total public revenues for the year are expected to be around Dh32.6bn ($8.9bn). Fees to establish businesses and conduct trade through Dubai will come to Dh20.22bn ($5.5bn), or 62%, of the total revenues. This is a significant increase of almost 10% from 2012, even though the government is not raising its fees for these services, indicating that growth is in the number of businesses and the level of activity, as well as a greater variety of government services.

LOOKING AHEAD: The 2013 budget will represent a deficit for the seventh year in a row. Government expenditures, estimated at Dh34.1bn ($9.3bn) for 2013, are still higher than government income, but are gradually returning to levels found prior to the financial crisis. Salaries and wages constitute one of the biggest allocations and represent 39% of the budget. This will support the creation of 1600 jobs for UAE citizens. Administrative expenses cover another 24%, while subsidies for housing, sports, education and other activities will be 11% of government expenditure. Infrastructure projects meant to stimulate growth and improve Dubai’s competitiveness will account for another 16% of the government’s revenues. Other allocations include security, hospitals, schools and related social development sectors.

There are currently several strategic initiatives in the pipeline that will determine how Dubai’s public finances will evolve to meet the emirate’s development goals without overextending government resources. The Department for Economic Development, for example, is currently preparing the 2020 Economic Strategy Plan (ESP 2020), which will re-evaluate and reposition the current Dubai Strategic Plan 2015 to help the emirate respond to the impacts of the financial crisis. This strategy will include a significant focus on improving productivity of investments within the emirate to ensure longer-term economic goals are met and will place a special emphasis on helping small and medium-sized enterprises, as they continue to play a key role in the local economy.