Dubai needs creativity to pay debt without taxes

“Increasing current charges and hidden taxes may generate revenue but will not get nearly close enough to covering the debt issues,” says Ghanem Nuseibeh, senior analyst at Political Capital consultancy.

In addition, analysts say hidden charges are counter-productive for the business environment in the long term.

“If there is any reform it should be to consolidate the sources of revenues into one system rather than branching out to different revenue mechanisms,” said Dean Rolfe, Middle East tax leader at PricewaterhouseCoopers.

“The more systems there are the more complex it becomes for businesses to operate here,” he added.

Dubai may be forced to continue its dependence on oil-rich fellow emirate Abu Dhabi, which has bailed the emirate out directly and, earlier this year, indirectly by way of two Abu Dhabi-listed banks and the central bank.

“Dubai will have to rely on support from Abu Dhabi, and possibly other states as well as selling of assets held by Dubai World,” said Nuseibeh.

“A combination of both seems the only viable way out, given Abu Dhabi’s less than full-hearted support.”

Abu Dhabi’s move to assist its struggling neighbour with $10 billion in bonds came on the due date of a $4.1 billion sukuk issued by Nakheel, the property subsidiary of Dubai’s troubled conglomerate Dubai World.

Last month, Dubai raised $5 billion from two Abu Dhabi banks.

The UAE central bank had bought the Dubai’s government $10 billion worth of bonds in February.