Cabinet Center of Public Policy to study impact of remittance tax – Central Bank of Kuwait voices concern

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KUWAIT CITY, April 10: Minister of State for Economic Affairs Hind Al-Subaih said the report of the Finance Committee of the National Assembly which has given the nod to apply tax on expat remittances will be submitted to the Cabinet’s Center of Public Policy to study the impact on the financial and economic areas and the negative and positive aspects, reports Al-Rai daily.

“Such legislation needs to be evaluated according to scientific and technical methodology because any strategic issue needs to be studied carefully, and therefore we can express our opinion on the report based on scientific grounds and technical dimensions,” Al-Subaih said.

Meanwhile, the daily quoting Times of Oman reacting on the said bill to impose a tax on expat remittances said the tax is modest one per cent for remittances under KD 99, and rises to 5 per cent for remittances beyond KD 500. The remittance outflow from Kuwait in 2016 was KD 4.6 billion ($15.3 billion), and nearly 27 per cent of that went to India, followed by Egypt 18 per cent, Bangladesh 7 per cent and the Philippines and Pakistan 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 tax on remittances. 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. If there are higher taxes on remittances from high-income expatriates, professionals could be dissuaded from pursuing longterm 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 laborers 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 laborers, such as electricians,

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