UAE to reduce Etisalat’s taxes

The UAE plans to reduce royalty charges or taxes paid by Etisalat to the government to help lift the company’s profits.

Etisalat pays half of its profits in royalties or taxes to the UAE government which amounted to $2 billion in 2010 accounting for a sixth of the country’s federal budget. According to Reuters, the government did not propose a timescale for the cuts but analysts are predicting reductions will be made on royalties paid on its 2011 profits.

Comparatively rival du only paid 15% in taxes and royalties in 2010. Du has benefitted from Etisalat’s profit losses gaining 40% of the UAE’s mobile market since starting operations in 2007 according to Reuters.

Across the region the UAE is known to have the highest royalty charges paid by its operators; Qatar Telecom, Omantel, Saudi Telecom and Zain all paid up to 20% in tax or royalties in 2010.

Jawad Abbassi, founder and GM from Arab Advisors Group explained how the UAE government can afford to cut royalties and taxes because, unlike other governments, it has an annual surplus not a deficit. "The rationale behind reducing the taxes for Etisalat is that now the market is competitive with the entrance of du and is no longer a monopoly."

Etisalat is majority owned by a state fund and because it operates outside the UAE, it pays royalties on its domestic profits and consolidated profits from abroad. The company has been in talks with the government to let it operate under commercial law which would allow people outside the UAE to own shares.