How do governments in tax free countries make revenues
Countries like UAE, Qatar, Monaco, Bahamas, Maldives, Bahrain, etc. are known for their negligible or zero income taxes. While this attracts a lot of people across the globe, the question that arises is, how do these tax free countries or tax havens make money?
Let's understand
The purpose behind establishing tax systems was to boost the economy by creating a source of revenue for the government. These taxes are meant to be utilised in a manner that the country's citizens' standard of living gets improved. However, this does not mean that people living in tax-free countries do not get access to a good life. Such countries make money by other sources.
Customs and Import Duties
Countries which provide individuals and corporations with no or little tax liability make significant revenues by imposing tariffs called customs/import duties on various goods that are imported into the country. For example: Kuwait charges 5% in customs duty.
Thousands of companies set up
their shops in tax havens for getting tax benefits and this actually benefits the governments of these countries as well. Governments of tax-free countries impose a registration fee on all newly incorporated companies and also charge renewal fees from existing companies annually, hence, end up earning good revenues.
Is it a co-incidence that quite a lot of the tax havens are also some of the world's most beautiful tourist destinations?
Whatever it may be, these countries use this to their advantage and charge departure/airport tax to people leaving the country. The tax is collected on airports & can also be added in the price of the flight.
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