Sources of Income and Expenditure of Dubai

Sources of Income and Expenditure of Dubai



Sources of Income and Expenditure of Dubai

Any country would not depend entirely on its business with other countries to earn its income or rely on donations to be economically sufficient. Countries have to establish its own internal sources of income, for instance the most common means of taxing its citizens on their own income and expenditure. A certain percentage of the actual prices of commodities that people buy is added as tax for the government. The little earned on every product accumulates to be collected by the government as a source of income. A small fraction of salaries and wages of the citizens are also taxed by the government as a contribution to the development of the country. Citizens are also expected to pay for property ownership like land, business or vehicles owned. At the same time, governments spend a lot of money and resources to better the lives of its citizens, for example laying down a good railway system, or expand and build new roads. This means that every government will be in debt to another at one point or another, and would require a source of cash to cover for the debts. The health industry, the education sector, social welfare, housing and protection among others are some of the governments major spending sectors.

For the developed nations such as the U.S., the sources of income have be analyzed and vary widely in terms of the percentage to be taxed because it is placed at a delicate position as a modern country that is expected to be economically stable all the time. Anyone who has property located in the U.S. has to pay a certain amount of tax, and also those with business that makes interest, the profits have to be taxed by the government. Dividends received are also treated as income and the government has to tax citizens and employers. Rentals, royalties, social security benefits and guarantees, which people living in the U.S., have to pay in case of indebtedness during residency in the country. In the recent years, the U.S. has realized major spending to better the healthcare system. Economic development including infrastructure, agriculture and the business sector also drain a lot of money and resources, with the U.S. as one of the most advanced nations trying to assume its position and keep up with modern technology, for instance Information Technology improvements, sophistication of the military and acquiring the latest healthcare systems.

This research paper however, reviews the sources of income and patterns of expenditure in the recent years for one of the seven United Arab Emirates regions, Dubai. It comes second to Abu Dhabi in terms of economic development, with the two contributing more than seventy percent of UAE’s income currently (Ahmad & Al Faris, 2010). Between the years 2003-2004, and even before this time, the people of UAE living in Dubai mainly depended on pearling, fishing, herding and agriculture and thus the source of income for economic development was derived from taxation on the activities. This was the time before the discovery of oil in the region and the local government strived to be economically stable through doing business with it neighbors. During the years, there was a major drop in income derived from farming and agriculture because of the changes in the climatic conditions. Employment suddenly dropped and so there was little to collect as revenue, thus the government had to spend a lot of resources to keep the agricultural sector afloat. In 2004, the economy attained some stability with the manufacturing industry including mining, manufacturing, construction and power, accounting for approximately 55% of GDP and greatly improved employment. The manufacture of aluminum, liquefied petroleum gas, distillate fuel oils and jet fuels contributed majorly on the percentage of GDP.

Income generated from the services sector in 2004, including financial enterprises and government services helped Dubai with its growth through new developments and expansion of the service industry, with more than one million people employed by the year. The main expenditure went into pending projects such as more intensive such for oil wells, improvement of infrastructure and creation of the services sector (Buhalis, Costa, & Ford, 2012). Due to the improvement of economy and the increase in the amount of money in circulation, the banking system arose to act as the government’s advisor on spending and also to encourage foreign banking as a means of earning more income through taxation and overseas business ventures. In 2004 also, the establishment of the Dubai International Financial Center (DIFC), a self-regulating financial free zone which later came up with the Dubai International Financial Exchange which is fully open to foreign market, establishing markets for funds, equities and bonds. All these were means of increasing trade activities and increase revenues collected from assets and interests.

Between the years 2007-2008, major oil wells had then been discovered and the focus of the government shifted to drilling and processing oil and its products. With the constant demand for oil by every country in the world, any country instantly become first class in economic development once they discover oil in their land. Dubai became dependent on oil and natural gas, with the revenue collected helping the government with infrastructure development. After the discovery of oil in the region, many powerful and manufacturing countries rushed to invest in Dubai, establishing their own industries in a bid to share in the growth of the Arabic city, in turn creating income generating opportunities for the local government to collect tax and revenue from the foreign investors. The escalating prices in oil and oil products worldwide gave Dubai a fast growth and expansion in the business world, rising up to compete stiffly with many oil-producing countries in terms of the amount of oil wells and oil production. Dubai Aluminum, owned by the Dubai government made the mining of the product the main economic activity and improved the growth by the earnings from aluminum exports. The country also depended on the Arab Monetary Fund (AMF), based in Abu Dhabi as a source of income during its initial growth (Davis, Ossowski, & Fedelino, 2003).

Dubai also benefits from the revenues collected on the exportation of hydrocarbons and a percentage of its oil products even though its production on oil is way lower than that of Abu Dhabi. Although oil dropped as a major contributor to the state’s revenue collection, it utilizes oil products that other nations lack including gasoline, kerosene and lubricating oil that automobiles and motor machineries need in order to perform their functions, and therefore oil has not entirely ceased to be of importance.

The major problem with the economic growth was the strong population growth that increased government spending in terms of establishment of proper housing, healthcare and a better education system. It has the largest population in the UAE prompting the state to establish strategies to control its economic growth. Government spending on energy and power was cut down with the introduction of natural gas from Qatar, especially to the Northern regions of the UAE, for instance Dubai where natural gas resources are no sufficient enough. The introduction of natural gas in Dubai would reduce government expenditure by a big margin because of the demand for power that would otherwise be very expensive producing by other means. The Dubai government also spent a lot of money on importation of necessary products such as machinery and transport equipment, chemicals, and most importantly food due to the deterioration in the agricultural sector. The high demand for oil and oil products increases the need for foreign labor and thus the Dubai government has to incur more costs in settling for a comfortable number of foreign workers who make it possible for the oil production industry (Kuwārī & Bowen-Jones, 2008).

Most recently however, between 2011 and 2012, Dubai has realized constant changes to fit in the Western style of business, now deriving its revenues from tourism, real estate, aviation and financial services. The growth of its economy and the fame it has on historically tall buildings, marvelous hotels and beautiful sandy beaches are a major attraction of tourists and investors. The government immediately switched from investing on more production of oil for its economic stability, to the more urgent need for establishment of sports facilities, modern marvels in terms of skyscrapers and world’s tallest building such as the Burj Khalifa, which attracts tourists from all over the world to have a look and take pictures. Much revenue is collected from taxing and charging foreigners for the smallest services when they fly in to experience the amazing structures and spend time exploring the marvels. A part from the tall buildings, there are unique sporting facilities and first class hotels, beaches and resorts, man-made islands and the largest shopping malls in the world that constantly invite tourists into the state. The government takes advantage of this to accumulate revenue as much as possible to aid in the improvement of Dubai and ensuring a steady economic growth (Oxford Business Group, 2007).

Dubai has a reputation as one of the most comfortable places to live in the world, and this notion attracts the wealthiest individuals in the world to bring in investment opportunities which the government encourages especially because of its ability to control the conditions for business that would ensure it earned a comfortable income. Many tourists who visit Dubai have a chance to experience the hot but comfortable climate, manage to extend their stay or make more trips as they wished, and this works as an advantage for the government. At the same time however, the state has to increase its spending to accommodate the surging tourists by improving infrastructure and restructuring housing in accordance to the first class ratings. The structures include hotels and resorts that take years to erect and often require the most advanced technology and modern inventions, all of which drain the state’s savings, expensive resources and skilled workers that demand a lot of money as wages. Generally, to make it the best city in the Middle East, the state has to embrace the latest technology which is usually very costly, therefore much resource is invested in projects aimed to attract more income. The current investment include building of four island structures off the coast to accommodate about 100 hotels that will boost the tourism sector and ensure comfortable hotel booking and occupation (Buhalis, Costa, & Ford, 2012).

The diversifying of Dubai’s income sources was mainly due to the low oil reserves, as it was notable that the economic growth now depended on an infrastructure that is not directly influenced by the oil sector. Tourism has increased hotel occupancy, recording a high 80% on average, making hotel revenue the highest in accumulation rates. Known for its low taxation rates where foreigners living there do not feel the pinch of high taxes usually imposed on goods bought and any services needed by expatriates, Dubai intends to raise more income from rich people who reside in the state and those who own business ventures, by focusing on subjecting them to indirect taxation to counter for tough economic times. Car parking fees have slightly increased, while various fees for processing forms in government offices have been raised to top up on revenue collected. The government makes the taxation indirect because its initial tax-free status was used to attract business investment and so should be careful not to drive away investors (Ahmad & Al Faris, 2010).

Road tolls have also been introduced to finance the improvement of roads and parking spaces, while speed-traps by police on highways aim at collecting more money from traffic offenders. The state also supports the move by the UAE that requires all citizens to acquire identification cards at a fee of 100 dirhams that would see over 80million collected as revenue. Enforcement of housing rental taxes also contributes to revenue by the government, all these in a bid to have as much money to counter indebtedness during harsh economic times. The fast-growing world and the rising demand for better services as a first class region in the world, Dubai expenditure has to be monitored in order to retain its reputation, with government’s expenditure reduced as much as possible, or alternative sources of income established to balance income and expenditure of the ultra modern state.


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