Kuwait is set to scrap a draft law to impose 5% tax on expats for remittances sent to their home country after the kigom's Chamber of Commerce and Industry voiced concerns about the negative impact the added tax would have.
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.
Sources have told local news outlet Kuwaiti Times that parliament has dropped the bill on taxing expat remittances from its agenda for the current parliamentary term ending in June.
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 sources added the government strongly disapproved of the proposal and would most likely reject it and return it to the parliament, where it will have to be passed by a majority of 44 votes to be re-discussed.
A report by Marmore MENA Intelligence 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," it stated.
The report said the tax rate suggested by would start 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 4.6bn dinars ($15.3bn). 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 IMF, of which Kuwait is a part of, does not allow for any member country to take discriminating procedures in terms of currency exchange or participation in activities that result in multiplicity of currency prices.
Although the IMF has warned in the past that this decision on money transfer by expatriates in the entire Gulf region is worth $84.4bnn and that the 5% tax would make up only 0.3% of the total income of the Gulf countries, thus having very limited impact in boosting the regional economy.. IMF had also stated that these type of moves will lead to negative traits.
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