Taxes on remittances

Muna Al-Fuzai

The announcement of the parliamentary finance committee that it is preparing a draft law to impose taxes on expat remittances created controversy in most Kuwaiti financial circles. I followed most of what has been published and found out that there are more opponents than supporters of this issue. Data from the Central Bank confirms that the average remittances in Kuwait exceed KD 4 billion annually (up to $15 billion), which makes the expected revenues from the transfers about KD 150 million, equivalent to $500 million.

If this law is approved, then Kuwait will be in the first country in the Gulf region to pass such a law, imposing a direct tax on the remittances of expatriates. The UAE and Saudi Arabia began imposing value added taxes since the beginning of 2018 of 5 percent only on the transfer fees. Kuwait is supposed to impose VAT next year, but I wonder how the government will maintain the balance between the imposition of tax on expatriate money transfers and the 5 percent VAT which is to be applied on the transfer fees. I find this very confusing.

According to the parliamentary financial committee, the remittance tax will range from 1 to 5 percent. The new law suggests penalties against those who don’t deal with official banks and exchange companies. I guess they need to add such penalties to warn those who may try to ignore the law if it’s approved and applied. It is known that banks and money exchange shops are the primary sources of remittances, but it is not done for free. These entities make financial gains and annual profits, so of course they fear a possible loss due to the possible formation of a black market for remittances abroad. I think their concern is justified.

The International Monetary Fund (IMF) is conservative on the subject and fears negative effects if the draft law is approved. I think since many experts and financial authorities believe that imposing a tax on expatriate transfers is a bad idea, maybe new and practical suggestions can be presented that can be for the benefit of both sides. For example, if imposing tax on expatriate remittances will not be effective in improving the sources of income or filling the budget deficit, maybe allowing expatriates to own their own homes, especially those who have lived here with their families for a long time in Kuwait, can contribute to improving income sources, as in other countries.

I know that most countries of the world impose a tax on individuals and companies and we hardly have a country today that provides totally free services. But if Kuwait couldn’t apply VAT this year like UAE and Saudi Arabia due to administrative and operational burdens, how can it apply strict financial control to expatriate transfers? Clearly, this issue needs a revision and reevaluation of its economic feasibility and possible risks.

By Muna Al-Fuzai

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