Fiscal and monetary of Dubai and United Arab Emirates
The United Arab Emirates is one of the most modernized countries with urbanized economic policies, and it expands its cooperation with numerous countries of the world. Over the past several decades, the United Arab Emirates has become an ideal platform for companies from all over the world, allowing them to develop their business and expand their markets. The national economy of the UAE is not only the oil and gas sector, incomes from which amount to no more than 30% of the national gross product as well as correctly orienting in the fiscal and monetary policy of the country (Almezaini, 2012). Thus, the development of the fiscal and monetary policies of the United Arab Emirates and Dubai is one chief factors in their prosperity because due to the specifics of these policies, the UAE is attractive for the investors from a wide variety of industries and many countries of the world.
Monetary and Fiscal Policies
Monetary policy is a policy of the state that is aimed at regulating monetary circulation in the country, thus ensuring the stability of the economy as a whole. The chief instruments of monetary policy are open to promote operations with administration securities (Khatat, 2016). This presupposes the change in the standard of mandatory reserves, established by the Central Bank of a state for commercial banks (Prasad & Espinoza, 2012). The main function of monetary policy is to achieve the macroeconomic goals, set by the states economic policy to ensure sustainable growth in production, necessary price stability, and the effective employment of the population.
At the same time, fiscal policy is a policy of government regulation primarily of aggregate demand. In this case, the regulation of the economy occurs through the impact on the amount of total costs (Singh & Kukunuru, 2017). However, some instruments of fiscal policy can be used to influence aggregate supply through the impact on the level of business activity. Fiscal policy is the measures that the government takes to stabilize the economy by changing the amount of revenues and/or expenditures of the state budget. The chief instruments of fiscal policy are the expenditures of the government budget, public procurement, taxes, and transfers (Prasad & Espinoza, 2012). Finally, the main functions of fiscal policy are smoothing the fluctuations of the economic cycle, stabilizing the rates of economic growth, achieving a high level of employment, and reducing inflation.
The Description of the UAE and Dubai Economy
The United Arab Emirates is one of the developed countries in the Middle East, with the financial system traditionally based mostly on the income from oil and natural gas. The basis for such a successful economic development of recent years was the high price of oil that provided stably high incomes for the state. According to Graph 1, the development of the economy of the UAE grows every year and gives an opportunity to improve the life of its citizens. The pace of its growth rate is approximately 10% 20% annually, which points to the fact that the economic advancement of the UAE is stable and positive (Singh & Kukunuru, 2017). In the UAE, the population of more than 8 million people mostly consists of immigrants (Singh& Kukunuru, 2017). Its ethnic composition is represented by the Hindus and the natives of the countries of South Asia as well as the indigenous population of the UAE. Among the seven emirates of the UAE, Dubai ranks first in terms of population, with 2,137,388 residents (Singh & Kukunuru, 2017). With the beginning of oil production in Dubai, the influx of foreign investments initiated the revenues from the oil trade and allowed to raise the standard of living of the local population significantly. The main economic activities in Dubai are logistics, trade, fairs, tourism and financial services as well as energy, high-tech, and capital-intensive industries (Prasad & Espinoza, 2012). In the Emirate of Dubai, the passenger and cargo air transportation sector, which accounts for almost a fifth of the country's economic output, is also of great importance due to a favorable geographical location and favorable structural prerequisites (Singh & Kukunuru, 2017). Thus, Dubai continues to develop as a key hub of the international air traffic network.
Fiscal Policy of the United Arab Emirates
The tax legislation of the UAE has its own peculiarities and distinctive features from traditional international fiscal systems. The regulations of fiscal law in this country reject such concepts as value added tariff, income tax, and commercial income tax (Toledo, 2011). Owing to such a system of assessment, the UAE has transformed into the largest industry and economic center in the Middle East over a relatively short period (Almezaini, 2012). Thus, this country occupies a leading position in the rating of economic freedom of the Heritage Foundation. Furthermore, the UAE has one of the most optimal business tax climates. The specifics of its fiscal policy are that it eliminates certain types of necessary payments to the state budget. For example, tax legislation does not presuppose the payment of mandatory income tax for individuals (Singh & Kukunuru, 2017). At the same time, if in some countries there is a need to pay taxes from the conventional income on a monthly basis (for example, income), in the United Arab Emirates such an obligation is not present.
In the UAE, there is no national tax legislation, and every principality independently regulates its lawful foundations. That is why the tax rate in different emirates may differ. For example, for the companies operating in the oil and gas industry in Dubai, tax rate may be as high as 60% (Singh & Kukunuru, 2017). At the same time, global companies and their branches, engaged in manufacture, trade, services, logistics, and tourism business, are registered in the United Arab Emirates. In addition, the huge impact is exerted by free financial zones since they attract the representatives of business from various countries. Moreover, the fiscal state policy of the UAE does not consider taxes as the main source of public revenues (Ewers, 2016). Consequently, with such a fiscal policy of the United Arab Emirates, international and local businesses have additional competitive advantages.
The Fiscal Policy of Dubai
The main peculiarity of the fiscal policy in Dubai is the fact that not only private individuals but also companies, trade, service industries, and manufacturing enterprises are freed from tax collections. Furthermore, Dubai's fiscal policy also completely excludes such a notion as mandatory social tax payment (Arvai, Prasad, & Katayama, 2014). As opposed to a significant increase in the tax burden in developed countries, Dubai has a number of advantages and opportunities for building international business solutions (Khatat, 2016). Due to the state fiscal policy, the UAE and its capital Dubai remain a rather attractive place to perform labor and entrepreneurial activities. Since Dubai's taxation system completely excludes the direct taxation of residents, the state's revenues are formed from indirect tax payments (Arvai et al., 2014). In Dubai, commercial taxes, including tax on income and capital gains, are levied on companies and economic institutions working in the banking as well as the oil and gas sectors of the economy.
The financial and commercial actions of companies in free zones are regulated by a particular state body that registers worldwide companies and provides state resolutions. The major advantage of the free financial zones of Dubai and other emirates is a constructive tax atmosphere (Ewers, 2016). Companies, working in these free financial zones, are guaranteed duty-free repatriation of the speculation capital at the lawmaking level and they have the preferential treatment for customs duties (Prasad & Espinoza, 2012). Thus, the Emirate of Dubai, which has turned into the largest financial center in the region, unites the business interests of many countries (Arvai et al., 2014). Special financial zones have become a direct personification of the money-making achievement of the United Arab Emirates.
Considering the above-said, one can conclude that the peculiarities of fiscal policy in the United Arab Emirates provide international investors with ideal conditions for building their businesses and achieving the stability of the country's economy as a whole. The capital of the UAE has a profitable and steady base for the successful growth of the economy. Furthermore, that the active diversification of the economy has allowed the rapid progress of numerous sectors such as international trade, financial sector, banking services, and finance. Due to the monetary policy of the United Arab Emirates and Dubai specifically, the country can develop a distinctive sphere of activity to ensure its successful development and the wellbeing of its population.
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