As someone born, bred, and belonging to the UAE – a country that has benefitted hugely from its prudent, business-friendly approach to levies – it may seem odd to hear me discuss the potential benefits of taxation.
Nevertheless, I, like the UAE, understand that economies and communities must be willing and able to adapt to changing circumstances if they wish to secure future prosperity.
Indeed, the UAE recently made global headlines for its introduction of Corporate Tax (CT), which confirmed taxability of business profits at a headline rate of 9%. While large multinational enterprises with profits in excess of AED3.15 billion will be taxed at a different rate, profits of up to AED375,000 will remain exempt from tax in a bid to support small businesses and start-ups.
A federal tax that is applicable across all seven emirates, CT will come into effect from 1 June 2023, heralding a new economic model – and era – for the UAE.
Taxation for good
The potential benefits of taxation for governments are well known. While the various pros and cons of levies vary from economy to economy, taxation – when handled appropriately – is a tried-and-tested method of ensuring that public funds are supported by companies and individuals who are best equipped to pay.
However, rather than explore the domestic considerations that are commonly discussed in relation to taxation, I would like to focus on its potential to be leveraged for the good of our global community.
So, does innovative taxation have the potential to help the global community achieve the United Nations’ Sustainable Development Goals (SDGs)?
The ‘Biscay Model’
When addressing this question in a recent article for the World Economic Forum (WEF), Kate Roll, Lecturer in Innovation Development and Public Policy at University College London’s (UCL) Institute for Innovation and Public Purpose (IIPP), explored how tax systems could be used to help finance the advancement of SDGs.
In her article, Roll extolled the virtues of the ‘Biscay Model’ – the strategy employed by the eponymous Spanish province to implement tax policies that prioritise corporate responsibility, climate and other issues related to SDGs. By mobilising resources, redistributing wealth, and promoting sustainable consumption and development, the academic argued that this approach offers a potential blueprint for international tax cooperation.
Biscay is using a range of mechanisms to achieve its goal, which is to achieve sustainable and equitable growth and wellbeing for its citizens. Rather than penalising poor practice, this model rewards contributions to the SDGs while recognising the importance of small businesses and start-ups.
You may well be wondering how the tax policies of a Spanish province could have any bearing on the UAE. I would say that the example being set by Biscay could offer a blueprint for the UAE, but also for the the global community at large.
By becoming the first ever authority to implement fiscal policies that are aligned with SDGs, Biscay has demonstrated that it is possible to use taxation to achieve a positive impact on a domestic and international level simultaneously.
This type of simple and inclusive approach is especially prescient for a nation such as the UAE, whose strategy for taxation is – relatively speaking – still in its infancy.
When it comes to levies, the Emirates could be viewed as somewhat of a blank slate; a canvas on which officials can draw up fair, socially responsible and sustainable taxation policies that can help lay the foundations for our nation’s future prosperity.
Emirati leaders have already taken significant steps in this direction with the introduction of CT – a policy which, like that of Biscay, recognises the importance of small and medium-sized enterprises (SMEs) as the backbone of our economy.
But what excites me most is the potential for the UAE to go even further, building the UN’s SDGs into the very fabric of its long-term fiscal policies.
There are 17 SDGs in total, spanning pressing issues from poverty, hunger, health and wellbeing to education, clean water, affordable green energy and economic growth. The UAE’s proactive approach to entrepreneurship and development is perfectly in keeping with the achievement of these goals, and formalising this alignment the form of future tax policies would no doubt serve to maximise our nation’s contribution to global sustainability and prosperity.
Of course, no country can drive positive change on a global level unilaterally, so international cooperation will be essential if we are to achieve the UN’s SDGs. Nevertheless, I am convinced that – like Biscay – the UAE is ideally placed to make a positive contribution that is disproportionate to its size.
Through innovative taxation, we can help bring about a brighter tomorrow for all.