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Economy 4.0

My Visit to Another Planet

David Brancaccio Jun 22, 2011

As a kid during the Apollo project, I very much wanted to walk on the moon, or even better, another planet some day. I seem to have just missed NASA’s last Space Shuttle, so about as close as I am ever likely to get occurred the other day in Abu Dhabi, capital of the United Arab Emirates. I was chatting with a local man who made it clear to me I had arrived on another world, one in which the central assumption of all fiscal policy on my home planet did not apply.

Khalid Al Ameri is an young Emirati entrepreneur and newspaper columnist. He was telling the story of the time he had to use western study guides to bone up for the big exams to get his credential in accounting and finance. Since the study guides were imported from oversees, Al-Ameri told me with a mischievous smile that they covered some topics that were tough to master because he had never encountered them before on Planet U.A.E. “Taxes? What are taxes?” Al-Ameri said.

Now that was a Through-the-Looking-Glass moment. A successful young businessman for whom taxes were something as foreign as fried grasshoppers might be for you and me. Turns out at the federal level, the U.A.E. doesn’t tend to tax. There is no personal income tax or corporate tax at the federal level. For an American this almost seems unimaginable. What do the people of the U.A.E. do in the days leading up to April 15th when Americans are plowing through Schedule As and 1040s? Perhaps they are soaking in the sun on one of their lovely beaches.

On further investigation, I determined that I had not actually made an interplanetary voyage. The U.A.E. is on earth, the planet where all governments like to bring in revenue to fund their operations. They have yet to invent the free lunch, even here. The UAE is a country made up of seven different emirates. These regional emirates do tax some targeted industries, especially such things as oil, where the tax can run 55 percent. There is also talk of starting to charge a sales tax-like VAT.

Additionally, using a technique well-known to cash-strapped state legislatures in the United States, the U.A.E. does charge fees. For instance, if you set up a business there, expect to write made out to government entities, even if they are not labeled “tax.”

However, until the oil runs out — and it could last for much of the century — several new generations in the U.A.E. will look at the personal income tax the way we look at Haggis, the Scottish delicacy made from stuffed sheep stomach: “How interesting. No thanks.”

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