One of the daunting things about being an adult is financing the government through paying taxes. An increase in taxes means an increase in pricing for services and commodities, which bores holes in people’s pockets, especially in developing countries. In 2018, the United Arab Emirates introduced a Value Added Tax of 5% on every product as the country could not sustain itself through revenue from oil only. This decision was the best foot forward in maintaining the country’s economy and finance for projects that would attract foreign investors, strengthen tourism, and develop more state-of-the-art infrastructure. With added commodities’ pricing due to the Value Added Tax (VAT) and giving more money to the government, it is hard for some people to keep paying taxes. The levy is burdensome, especially for businesses that are supposed to increase the prices of their goods and services and still compete with various markets, including international markets, in selling their products. Therefore, there is a tendency among individuals and businesses not to comply with tax payments. Based on various surveys from civilians on their tax payment experience and interviews with tax collectors and auditors, paying taxes is not a blissful experience. However, it is a civic duty that every citizen needs to undertake. This paper analyzes reports from surveys and interviews on tax morality and the workability of the tax laws on the economy.
Tax morality is a moral practice that determines if individuals pay taxes according to the appropriate tax rate and rules. Many tax systems depend on taxpayers’ desire to comply with rules and regulations to pay their tax dues; hence tax morality is critical. One of the essential aspects of tax morality is to ensure a fair collection of taxes. The taxes help increase the county’s gross domestic product (GDP), especially in the United Arab Emirates, where oil prices reduced significantly due to increased competition, especially from the OPEC countries. Nonetheless, there should be an equal levy of taxes on items depending on their market price. For instance, the tax levy on a 30-dirham dress cannot be the same as a 25-million-dirham gas chromatography machine. Therefore, tax morality ensures fairness and enforcement of tax payments.
An increased VAT registration proves the workability of the tax laws over the years since 2018. According to the government report, there was a sharp decline in VAT registrations between 2018 and 2019 due to new tax laws. This decline resulted from the introduction of the laws, which critically affected some businesses at first. However, from 2019 through 2021, the curve has gradually risen as people and businesses adjusted to the tax laws. Nonetheless, the government has developed more projects, such as increased infrastructure, within the three years compared to previous years due to increased revenue. Therefore, the figures on the VAT registration prove that people believe in the tax system and the tax laws bear fruits.
The various surveys show different responses referring to their notions about the tax laws, how it impacts their lives, and the workability of the laws. 79.66% of the respondents noted that the taxes were reasonable in the survey. Comparing UAE to other countries, the country has a low VAT of 5%, which the majority of the citizens can pay comfortably. Most of the 86.44% respondents also acknowledged that the taxing systems were fair enough for them. 61.02% of them note that it was easy to understand the tax laws. Federal Decree-Law No. (8) of 2017 is the tax law that describes the tax range, rates, tax liability, and provision of goods and services. Besides the doubt on how tax money is used, 89.83% note that the tax money is used to enrich citizens’ lives. From the survey, 96.61% acknowledge that it is their civic duty to pay taxes and prove one’s loyalty to the country. 33.90% of the respondents note that some tax exemptions harm UAE nationals, resulting in inequality, with the rest negating the fact and believing that these exemptions hurt nobody.
Additionally, 47.46% of the respondents believed that the tax system needed to be reformed, while the rest acknowledged that the system is exemplary the way it is. 61.02% of the citizens believe that when other citizens fail to pay taxes, it negatively impacts the regular taxpayers. According to Miller, the country has a set budget to run operations which requires collective input from many people to reduce the price paid per person. Therefore, the more people pay their taxes, and the more affordable the tax rates are because of the increased tax collected. Nonetheless, 76.27% of the respondents acknowledge that United Arab Emirates citizens uphold high tax morality. The survey to this point was a yes or no questionnaire.
In the next leg of questions, the survey consists of multiple choices. More than 56% acknowledge that evading tax payment is unethical as a reason for evading tax, while 35.42% feel that the tax is too high for someone to take that money off their income. 52.08% chose that the government takes legal action against those who do not comply with the tax laws. The more significant percentage of 85.42%, chose that instead of legal action against non-taxpayers, the government should school them on the need to pay tax. Out of 48 respondents, 25 of them, being the most significant percentage, believe that paying a fine would be the best enforcement incentive compared to small fines, arrests, audits, or prosecution. The survey response also includes educating people on the importance of taxes as the most voted option for a community-based initiative for tax compliance and teaching people how the government spends the money. This move clarifies any doubts about the government or anyone helping themselves with the tax money. More than half of the group voted for lower tax rates, while others considered exempting small businesses in a particular industry struggling from paying taxes would help. This survey helped in quantifying people’s views on tax compliance.
Nonetheless, the study incorporates interviews with people concerned with tax enforcement. The respondent emphasizes the need to pay taxes, as it is one’s civic duty, and there is no need to defy paying taxes. Zafarullah writes on the importance of taxes in the United Arab Emirates. It helps the government see through various development projects and how the country cannot rely on oil money alone. Therefore, The respondent sees no reason people should evade paying taxes because it shows a lack of civic duty and morality. To him, businesses and individual taxpayers have the same tax evasion habits. However, tax evasion has improved over the years, with enforcement the best way to ensure tax compliance. The respondent’s interview highlights that tax evasion is a problem that people create.
Moreover, a senior tax auditor acknowledges that tax evasion is an evident problem because the government does not stipulate how it uses tax money. People barely see how they benefit from paying taxes. Bardhan also raises this concern, noting how corruption is at 5%, and politicians seem to benefit from taxes by considering their interests. Nonetheless, The respondent notes that the tax evasion issue is due to the taxpayer’s distrust of government operations. To The respondent, tax evasion is illegal, thus the reason for complying with tax payment. As many people, especially individuals, are finding better ways of evading tax, The respondent believes that the government should use incentives like rewards and enforcement like penalties to make people pay taxes. The respondent’s thoughts question the government’s use of taxes in development, a widespread belief among many individuals that causes them not to pay taxes.
Additionally, in another interview with a tax enforcer, the problem of tax evasion is tied to economic struggles where people barely pay taxes due to a lack of employment and the need to save money. Tax evasion is not morally right to the respondent as businesses are more elusive than individuals. However, the tax evasion problem improves with people learning more about taxes and understand the need to pay taxes. According to Zafarullah, the government introduces paying taxes through primary education and progresses to show how to pay them. The heavy penalties levied are also a constant reminder of the need of people to file their taxes, such as it is in the UAE, where the penalty may levy an individual with a 300% tax penalty for evading payment for a month past the deadline. However, with rising unemployment rates in the country, there is a need for the system to be changed so that people can easily comply with the tax payment.
Tax morality and paying taxes diligently significantly impact the economy. One common issue highlighted among the three interviews is that morality is not a basis for tax payment; instead, the system needs to develop just ways of ensuring tax compliance. As a recommendation from the surveys and interviews, educating the masses on the importance of tax compliance would help in increasing tax payments. In addition, non-taxpayers should pay a significant fine to ensure tax morality. As many people voted for lower tax rates, the UAE has significantly low tax rates already and is still sustaining itself well. Therefore, a decrease in taxes would cost the country some major development projects and decrease economic output. Additionally, the charging of taxes to citizens should also fairly apply to non-UAE residents in the United Arab Emirates. In most cases, international charges vary with the citizens, where international residents tend to pay more for items and services. However, most aliens are trying to make a living, and imposing heavy tax duties would hurt them financially. It is understandable if heavy tax laws are imposed on tourists rather than non-UAE residents. Lastly, the government should be held accountable for using taxes, which would enable the citizens to trust the entity with their hard-earned money. In conclusion, the survey response and interviews provide a holistic view of the UAE taxing system and its impact on the country’s economic growth.
Bardhan, P. Corruption and development: a review of issues. Political Corruption. 2017.
Miller, A. H. (2019). Data modeling and visualization of tax strategies employed by overseas American individuals and firms. In International Conference on Emerging Internetworking, Data & Web Technologies (pp. 309-321). Springer, Cham. Web.
Saderuddin, A., & Barghathi, Y. (2018). The laws of the introduction of VAT on the audit profession and economy in the UAE: Auditors’ perspective. Accounting and Management Information Systems, 17(3), 406-439. Web.
Zafarullah, M. Impact of VAT on UAE Economy. Asian Development Policy Review, 2018.