Kuwait edges closer to introducing remittance tax
LONDON - Expatriates in Kuwait could soon be facing a new reality after the Gulf country’s Parliamentary Financial and Economic Affairs Committee (PFEAC) approved a bill that would tax overseas remittances.
If the bill, up for debate in parliament, is eventually accepted by the cabinet, it would make Kuwait the first Gulf Cooperation Council (GCC) member to impose a remittance tax.
The GCC is known for a heavy dependence on expatriates in many sectors of its economies and analysts warned that taxing remittances would force expats to find alternative methods of sending funds home, a concern mentioned by the Central Bank of Kuwait.
Marmore MENA Intelligence, a subsidiary of Kuwait Financial Centre known as Markaz, said the issue has historically been met with opposition in the Kuwait parliament regarding constitutionality.
The Marmore report warned that the measure could lead to an exodus of skilled workers. “This could prove disastrous at a time when Kuwait strives to transform itself as a knowledge-based economy and has a large scale need for highly skilled professionals,” the report stated.
The report said the tax rate suggested by the PFEAC starts at 1% for remittances less than 99 Kuwaiti dinars ($330) and increases to 5% for remittances beyond 500 dinars ($1,660). Remittance outflow from Kuwait in 2016 totalled 4.6 billion dinars ($15.3 billion). Nearly 27% of that was sent to India, 18% to Egypt, 7% to Bangladesh and 3% to both Pakistan and the Philippines.
The Marmore report was critical of the bill’s lack of clarity, saying it does not clearly define the category of people to be paying the taxes.
“The bill, in its current form, also failed to describe what would constitute as remittance, would it include income or even loans availed from banks that is being sent abroad. Lack of clarity and proper definition could hinder the upcoming debate in the parliament,” the report stated.
The Economist newspaper said a remittance tax would be a source of sizeable income for the Gulf country but would “probably come at a significant cost.”
“Kuwait is reliant on foreign labour, which makes up more than 80% of the country’s workforce and around 70% of its population,” the Economist said. “With neighbouring Gulf countries similarly dependent on expatriate labour, Kuwait would probably compromise its ability to attract skilled foreign workers, who would search for opportunities elsewhere.”
Kuwait is not the only GCC country introducing measures to deal with economic realities due to the state of the energy sector. In January, Saudi Arabia and the United Arab Emirates introduced value-added taxes and the rest of the GCC is expected to follow suit before 2020.
Kuwait began an economic development plan in 2017 to turn its country in a business and cultural hub. Dubbed “New Kuwait 2035,” the initiative’s goal is to diversify Kuwait’s economy away from the energy sector, which, official figures indicate, accounts for 88% of the country’s GDP.
New Kuwait 2035, like the Saudis’ Vision 2030, hopes to generate capital through large projects, developing the tourist industry, enriching and nurturing participation by the private sector.