I’ve got less of a problem with sales taxes like value-added tax (VAT), due to be introduced in the Arabian Gulf next year, because I can decide whether or not to buy the taxed items. There is some discretion involved.
But with income tax, you have no say in how it is calculated, how it is taken, nor how it is spent. In the UK, where I lived previously, I did not object to paying tax that would be spent on hospitals, schools and universities, and essential infrastructure.
But how could I distinguish that from the money spent by the government on armies in dubious foreign conflicts, or subsidies to obsolescent businesses, or on bureaucratic government structures, like the tax authorities themselves?
In the UK, income tax is not “hypothecated” — in auditor speak — so people have no choice over where their hard-earned money goes.
When I moved to the Gulf, I said at the time — and still believe — that there were two overriding attractions of the place: Valet parking, and no tax. To live without the daily hassle of searching for a parking place, and the monthly theft of my money, would make me happy.
So, I blew my top when I saw the EU’s “blacklist” of tax havens that included two countries in the region, the UAE and Bahrain, in a schedule of 17 countries deemed not to have cooperated sufficiently with the EU’s Tax Commissioner Pierre Moscovici.
The list contained some pretty harmless places, like Grenada, Guam and Mongolia; there were some obvious targets for a tax harvester like Moscovici, such as Panama, the Marshall Islands and Macau; and some big shocks, like the Gulf countries mentioned above, as well as Tunisia and South Korea.
These 17 are deemed “non-cooperative jurisdictions” that do not adhere to EU diktats on taxation, such as transparency of the tax regime and incentives to foreign companies such as low rates of corporate taxation.
I suspect, however, that their real “crime” is that they ignored Moscovici’s silly little request to tick some boxes on an EU questionnaire.
Where to start objecting to this? Is it the fact that there are no European countries on the list? Moscovici overlooks the “flexible” tax regimes of EU members such as Ireland, Luxembourg and Malta, all of which are in dispute with the EU itself over their tax regimes.
He also overlooks the “specialist tax advisers” in London, Amsterdam, Paris and Brussels, who make a living out of helping people avoid paying tax in their own jurisdictions, often by funnelling the money to the 17 “blacklisted” countries.
Moscovici ignores that closely-related brother of the tax haven — the money-laundering center — which is again a speciality of the big EU financial hubs.
The bloc has deemed the UAE and Bahrain ‘non-cooperative jurisdictions’ — but makes the incorrect assumption that tax havens are bad.
London in particular has often been called the money laundering “capital of the world” and the ease of setting up shell companies in the City is well known. But London does not appear on the EU blacklist. Maybe it will after Brexit.
But it is the inclusion of the Arabian Gulf countries that I find most illogical. Moscovici, a Frenchman immersed in the bureaucratic ways of the EU, obviously cannot get his head round the fact that it is possible to have an economic model different from the Brussels template.
All the Gulf countries work on variations of a zero-tax regime, where the top line is the same as the bottom line.
That is the bargain that expatriates make when they come to live in the region: They will take home all their pay, but will have to spend privately on health care, education and other services.
That model has actually worked pretty well in the region, helping it modernize and grow for the near 50 years since the colonialists left. It is now being tweaked with the introduction of VAT, which is no bad thing, and some form of extended corporate taxation is being considered.
But there is still no appetite for income tax in the region, which the authorities recognize would erode its attraction as a place to do business and attract global talent.
But my fundamental objection to the EU’s blacklist is not that it leaves out obvious tax havens closer to home; nor that it confuses tax havens with money-laundering centers; nor that it tries to impose a Brussels-centric view on the rest of the world.
It is that Moscovici makes the assumption that tax havens are bad. A haven is a safe place, a refuge from a storm, a secure and protected environment in troubled times.
If living in the UAE protects me from the tax man, I’m very grateful for that.
• Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai