Kuwait to become first GCC state to impose remittance tax
April 9, 2018 | 5:33 PM
by Times News Service
Times file picture for representational purpose only.

Muscat: A bill to impose a tax on remittances by expatriates based upon their income levels has been approved by the Parliamentary Financial and Economic Affairs Committee of Kuwait.

According to reports, the suggested tax rate starts at a modest one per cent for remittances under KD99, and rises to 5 per cent for remittances beyond KD500. Remittance outflow from Kuwait in 2016 stood at KD4.6 billion ($15.3 billion), with nearly 27 per cent of that sent to India, followed by Egypt at 18 per cent, Bangladesh at 7 per cent and Philippines and Pakistan at 3 per cent each.

The bill, approved by the financial committee, has been opposed by the legislative committee, citing constitutionality. If the draft bill is approved, it will then be referred to the government and, if accepted by the cabinet, it would become law. Kuwait would then become the first country in the Gulf Cooperation Council (GCC) region to impose a remittance tax.

The remittance tax bill that is being debated weighs the implications of introducing a remittance tax in Kuwait from a wider economic perspective, and has been discussed in a recently released research note entitled, ‘Remittance Tax in Kuwait: Is it coming finally?’, by Marmore MENA Intelligence, a subsidiary of Kuwait Financial Centre (Markaz).

According to the report, while the bill discussed imposing taxes on remittances, it failed to clearly define the category of people who will be paying taxes. The bill, in its current form, also failed to describe what would constitute a remittance, leaving open the questions of whether it includes income, or even loans from banks that are being sent abroad. A lack of clarity and proper definitions could hinder the upcoming debate in parliament.

Critics of the bill have warned that introduction of taxes on remittances would lead to a mushrooming of alternative channels, or a parallel black market to route money back home. The Central Bank of Kuwait had also voiced similar concerns in the past.

If there are higher taxes on remittances from high-income expatriates, professionals could be dissuaded from pursuing long-term stints in Kuwait, harming the available supply of such workers. This may be counterproductive at a time when Kuwait strives to transform itself into a knowledge-based economy and has a sizable need for highly skilled professionals.

Unskilled labourers and semi-skilled workers, whose wages are low and fall under the lower tax bracket, would also stand to lose. Further, this is a problem that could be exacerbated by the rising costs of living, especially at a time when fuel and utility costs are on the rise. This could result in demands for higher wages among workers, such as electricians, plumbers, mechanics, and construction labourers.

Overall, the impact of remittance taxes on expatriates would be felt on businesses operating in Kuwait as higher salaries and wages, and on Kuwaiti nationals in the form of higher expenses to purchase expat services.

Kuwait is currently ranked seventh among the countries from which foreign money transfers are performed. Out of the total foreign remittances, 26.6 per cent of the remittance was sent to India, amounting KD1.1 billion, followed by Egypt with KD750 million (18.1 per cent), Bangladesh with KD290 million (seven per cent), Philippines with KD250 million (6.1 per cent) and Pakistan with KD220 million (5.3 per cent).

Elsewhere, the UAE imposes a Value Added Tax (VAT) on all expatriate remittances. The VAT on remittances, however, is not a tax on the remittances themselves, but is specifically placed on remittance services, implying that the VAT will apply only to the fee charged. rather than the amount of funds being remitted.

Saudi Arabia, in contrast, imposes an ‘expat levy’ which requires foreigners working in the private sector to pay a family tax of SR100 ($26.60) per month for every minor or unemployed relative living in the country. There are an estimated 11 million foreigners work in the Saudi private sector, with 2.3 million of their dependents living in the kingdom, according to the Public Authority for Statistics. The tax is expected to increase every year until 2020, reaching SR4,800 ($1,280) annually per dependent.

Similar to Kuwait, Bahrain is also proposing to impose a BD1 fee on remittances below BD300, and BD10 for all money transfers exceeding BD300. If implemented, it would add at least BD90 million to the state exchequer. Currently, some BD2.5 billion is transferred abroad annually by expatriate workers in Bahrain.

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