The Sources of Income and Patterns of Expenditure in Dubai

In order to be economically sufficient, any country can neither depend entirely on its business with other countries in earning its income nor rely on donations. Countries have to establish their own internal sources of income; for instance, the most common mean is taxing its citizens on their own income and expenditure. A certain percentage of the actual prices of goods that people buy is added as a tax for the government. The little earned on every product accumulates to be one of the main sources of income of the government. 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 they own. At the same time, governments spend a lot of money and resources on improving the lives of its citizens, for example, laying down a good railway system, or expanding, and building new roads. This means that every government will be in debt to another country at one or another point, and would require a source of income to cover the debts. The health industry, the education sector, social welfare, housing, and protection are some of the government major spending sectors, among many others.

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For the developed nations such as the U.S., the sources of income have to be analyzed and vary widely in terms of the percentage to be taxed, because it is in 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 certain taxes. In addition, businesspeople that make interest have to have their profits taxed by the government. Any dividends received are also considered income, and the government has to tax citizens and employers. Rentals, royalties, social security benefits, and guarantees have to be paid by people living in the U.S., in case of indebtedness during their residing in the country. In the recent years, the U.S. has realized the major spending to improve the healthcare system. Economic development including infrastructure, agriculture, and the business sector also drain a lot of money and resources. Today, the U.S. is one of the most advanced nations trying to assume its position and keep up with the modern technology by means of, 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 the UAE's income currently (Ahmad & Al Faris, 2010). In 2003-2004, and even before this time, the people of the UAE living in Dubai mainly depended on pearling, fishing, herding, and agriculture; thus, the source of income for economic development was derived from taxation of the citizens' activities. This was the time before the discovery of oil in the region; the local government strived to be economically stable through doing business with its 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 had 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 generation and supply, accounting for approximately 55% of GDP. It had improved employment levels greatly. The manufacture of aluminum, liquefied petroleum gas, distillate fuel oils, and jet fuels contributed majorly in 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 during the year. The main expenditure went into pending projects such as more intensive funding of the oil wells, improvement of infrastructure, and establishment of a powerful services sector (Buhalis, Costa & Ford, 2012). Because of the improvement of the 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 mean of earning more income through taxation and overseas business ventures. Moreover, 2004 saw the establishment of the Dubai International Financial Center (DIFC), a self-regulating financial free zone that later came up with the Dubai International Financial Exchange, which was fully open to the foreign market, establishing markets for funds, equities, and bonds. All these were the means of increasing trade activities and revenues collected from assets and interests.

In 2007-2008, major oil wells were discovered, and the focus of the government shifted to drilling and trading oil and its products. With the constant demand for oil in the modern world, any country becomes a first class player in the global economy once it discovers oil in its territory. Dubai became dependent on oil and natural gas, with the collected revenue helping the government in the 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 get a part 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 increasing prices for 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 number of the oil wells and amount of the oil production. Dubai Aluminum, owned by the Dubai government made mining of oil the main economic activity and improved the growth by earnings received from the 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 the production of oil is way lower than that of Abu Dhabi. Although the oil has dropped as a major contributor to the state's revenue collection, Dubai 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. Therefore, the oil has not entirely ceased to be of importance.

The major problem with the economic growth was the fast population growth that increased the government spending in terms of ensuring proper housing, healthcare, and better education system. It has the largest population in the UAE prompting the state to establish strategies to control its economic growth. The 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 there are no enough natural gas resources. 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 a very expensive producing by other means. The Dubai government has 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; thus, the Dubai government has to incur more costs in attracting a comfortable number of foreign workers who will make it possible for the oil production industry (Kuw?r? & Bowen-Jones, 2008).

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Most recently, however, between 2011 and 2012, Dubai realized constant changes to be made, in order to fit in the Western style of business. Now, the region earns 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 for tourists and investors. The government has immediately switched from investing in more production of oil for its economic stability to more urgent need for the establishment of sports facilities, modern marvels in terms of skyscrapers, and world's tallest building - the Burj Khalifa, which attracts tourists from all over the world. A lot of revenue is collected from taxing and charging foreigners for the smallest services when they visit Dubai to see the amazing structures and spend time exploring the marvels. Apart 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 attract tourists into the state constantly. The government takes advantage of this to accumulate as much as possible revenue to improve Dubai and ensure a steady economic growth (Oxford Business Group, 2007).

Dubai has a reputation as one of the most comfortable places where to live in the world. This fact attracts the wealthiest people in the world to bring in the investment opportunities, which the government encourages especially because of its ability to control the conditions for business that would ensure it earns 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 wish, and this works as an advantage for the government. At the same time, however, the state has to increase its spending to accommodate the tourists by improving the infrastructure and restructuring the housing in accordance with 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 rely on 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 that is usually very costly; therefore, many resources are invested in projects aimed at attracting more income. The current investment includes building of the 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 diversification of Dubai's income sources was made mainly due to the low oil reserves. It was notable that the economic growth depended on an infrastructure that was not influenced by the oil sector directly. Tourism has increased the hotel occupancy, reporting a high 80% on average, making the hotel revenue the highest in the accumulation rates. Dubai is 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. Dubai intends to raise more income from the rich people who reside in the state and those who own business ventures, by focusing on subjecting them to indirect taxation to counter for the tough economic times. The car parking fees have slightly increased while various fees for processing forms in government offices have been raised to top up on the revenue collected. The government makes the taxation indirect because its initial tax-free status was used to attract business investment; therefore, it should be done carefully not to drive away investors (Ahmad & Al Faris, 2010).

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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 decision of 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 received by the government; all these steps aim at having as much money to counter indebtedness during harsh economic times as possible. The fast-growing world and the rising demand for better services make the first class region in the world, Dubai, monitor its expenditure in order to retain its reputation. The government has to reduce its expenditure as much as possible, or find alternative sources of income to balance income and expenditure of the ultra modern state.

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