Marmore MENA Intelligence, a subsidiary of Kuwait Financial Centre “Markaz”, recently released a research note titled “Remittance Tax in Kuwait: Is it coming finally?” which discusses the remittance tax bill that is being currently debated and is expected to gain KD70 million annually.
Marmore report stated that the Parliamentary Financial and Economic Affairs Committee approved bills for imposing tax on remittances of expatriates, based on their income level.
Tax rate starts at a modest 1 percent for remittance under KD99 and goes all the way to 5 percent for remittance beyond KD500. Remittance outflow from Kuwait in 2016 stood at KD 4.6bn with nearly 27 percent sent to India, followed by Egypt at 18 percent, Bangladesh at 7 percent and Philippines and Pakistan at 3 percent each.
The bill approved by the financial committee has been opposed by the legislative committee citing constitutionality. If approved, the draft bill will then be referred to the government and in case it's accepted by the cabinet, it would become a law. Kuwait would then be the first country in the Gulf Countries Council (GCC) region to impose remittance tax.
While the bill discussed about imposing taxes on remittances, it didn’t define the category of people who will be paying the taxes. The bill in its current form also failed to describe what would constitute as remittance which could hinder the upcoming debate in the parliament.
Critics of the bill, stated the report, warned that introduction of taxes on remittances would lead to alternative channels or parallel black market to route money back home.
Kuwait’s Central Bank also voiced similar concerns in the past.
Higher taxes for high-income, knowledge workers could be dissuaded from pursuing long-term job in Kuwait and this could constrain human resources in this sector. This may be counterproductive as Kuwait attempts to transform itself into a knowledge-based economy and has a large scale 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 on the amount of money that they could save.
This could result in demand for higher wages across workers like electricians, plumbers, mechanics, and construction laborers.
Overall, the impact of remittance taxes on expatriates would be felt on businesses operating in Kuwait which could be forced to offer higher salaries.
Kuwait is currently the seventh country from which foreign money transfers are done. Of the total foreign remittance, 26.6 percent of the remittance was sent to India amounting KD 1.1 billion, followed by Egypt with KD750 million, Bangladesh with KD290 million, Philippines with KD250 million and Pakistan with KD220 million.
Elsewhere, UAE imposes a Value Added Tax (VAT) on all expatriate remittances, indicated the report. VAT on remittances 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.
Marmore indicated that similar to Kuwait, Bahrain is also proposing to impose BD 1 fees on remittances below BD300 and BD 10 for all money transfers exceeding the amount of BD300. If implemented it would add at least BD90 million to the state exchequer.
Currently, around BD 2.5 billion annually is being transferred abroad by expatriate workers in Bahrain.
