Thursday, October 13, 2005

Whenever there is a system, people will seek to game it.

The tax free environment assured by the Jebel Ali Free Zone Authority (Jafza) is being "jeopardised" by an export tax on scrap metal levied by the customs department, say companies in the zone.

Jafza companies dealing with scrap metal told Gulf News they recently received a directive from Dubai Customs asking them to pay an export duty of Dh250 per metric tonne and that they must pay it a year retroactively. For many companies the arrears amount to millions of dirhams.

The Dubai Customs memo states: "The Federal Customs Authority of the United Arab Emirates has informed us vide their above letter Ref No (492/2005 dated 03/09/2005) that you were exporting metal scrap from the UAE without meeting their requirements and permission."
. . .
The companies point out that any kind of tax levied on Jafza operations goes against the very principle upon which the free zones operate. Many of the companies say they have been in Jafza for 15 to 20 years and chose to locate there because foreign ownership was allowed, and there was assurance that no import/export and income taxes were applicable to companies in this zone for at least 50 years. "The fear we now have is whether we are going to lose the tax-free benefits which had primarily attracted us to establish in the free zone," [said an official of one of the companies].

Some of the largest scrap dealers in the region are based in Jafza.

The export tax on scrap exists to protect domestic purchasers of metal products. Locating your scrap metal export business in a free zone is (or, rather, was) a simple way to beat the system. Given Dubai, Inc.'s massive construction campaign it has some interest in closing this avenue of defeating the export tariff, but it breaks the principle of a free zone that draws investment. Is Dubai merely using the Federal Custom Authority as a pretext, or has Abu Dhabi forced Dubai's hand?


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