x Abu Dhabi, UAEMonday 24 July 2017

Dubai's fund-raising drive must not put brakes on good life

Frank Kanes wonders how he would readjust to life in Europe after living tax-free in Dubai.

When I first arrived in the UAE five years ago, there were many things that attracted me to life here but they were all summed up in four words: "valet parking, no tax".

The sheer convenience of handing over the car keys at the entrance to a five-star hotel at the beginning of a convivial night was so far removed from what I'd got used to in the UK - expensive taxis, uncomfortable public transport, inconvenient parking facilities - that it smacked of luxury for me back then.

Even though I've got used to it now, and take for granted that the chap in the crisp white uniform will take care of the car for me, valet parking is still one of the little things that make life good in the UAE.

The other two words, "no tax", are far more basic. Back in the UK, it's no exaggeration to say I hated the tax man, dreaded the annual ritual of filling in an income tax return form, and resented every penny he took from me.

Coming to the UAE, where the bottom line is the same as the top line - that is, some 30 per cent or so higher than the UK - felt like a liberation. I don't know how, if I were to return to heavily taxed Europe now, I would readjust to the many acts of robbery called taxation.

But times have changed since I've been here. On the valet parking front, more hotels are demanding you get a stamp from the bar or restaurant you're attending, with a minimum spend of Dh50 (US$13.60) or so, to cover the cost of the valet service.

I don't mind this, because I would have spent the money anyway and appreciate the service the valet provides. I'd normally tip him a minimum of Dh20 in any case because the service is so essential, and I would imagine he doesn't get paid very much to do his job.

In a way, the tip I give that valet parking man is a tax, a charge on my income for a service rendered, but one that I don't mind paying because it is what the economists call "hypothecated" - that is, the cash I pay goes directly and specifically to one service, and I can see the immediate benefits of the imposition on my finances.

When I enter the hotel and have dinner or drinks at the bar, there is another tax, but this I resent more. The municipality tax hotels charge on food and beverages consumed on their premises can be quite stinging, at 12.5 per cent on the total bill. That will often wipe the smile from your face after a good evening out.

It is less hypothecated than the valet charge. I've paid already for the food and service, and the municipality wants to take an extra slice for … what exactly? I doubt all the money harvested from hotels and restaurants is reinvested in more and better facilities.

Surely it all ends up in a big pot called "Dubai budget", and gets spent on whatever the Government wishes. That's what an un-hypothecated tax involves: the payer has no say in the way his cash is spent.

I thought about the principle of tax hypothecation for the first time in a long time the other day when I heard of Dubai's plans to securitise some $800 million of revenue from the Salik road toll charges. It's a clever scheme, and shows the emirate's financial leaders are keeping abreast of new developments in financial engineering.

Essentially, the Dh4 I pay for every trip on Sheikh Zayed Road is a tax on road use. It has the useful side benefit of helping to reduce congestion on some roads in the city, although I suspect the financial downturn has had just as much to do with the absence of the awful traffic jams that blighted working life in the city in the boom times before 2008.

The cash, once securitised, will go to pay for future investment in the emirate's transport infrastructure, according to last week's announcement, and that, too, is a good thing. But bureaucrats everywhere, and especially in finance departments, have a terrible habit of mixing public funds into one big pot and calling it "revenue".

So, while applauding the new Salik securitisation and the aim of better road transport in the emirate, I would like to see these funds hypothecated, and accounts published regularly of projects on which they were spent.

Otherwise, it might just end up as a creeping tax, and reduce the attractiveness of life in Dubai a little more.

fkane@thenational.ae