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Panel: Remittance tax a fee for expats using govt services

April 16, 2018

The parliamentary financial affairs committee said it will discuss the 31st report concerning taxing expats’ remittances in its meeting tomorrow. The committee stressed that the aim of such proposals is to find new sources of income by taxing remittances by expats as a fee for the educational, health and other services the state provides them. The committee also believes that expats have access to subsidized goods such as fuel, gas and electricity, and that this tax will eventually affect the quality of the services as a whole.

On the other hand, the parliamentary legislative committee unanimously rejected the proposals for various reasons such as suspicion of the proposals’ unconstitutionality on grounds of discrimination against expats, that taxing expat remittances would create an illegal market outside official providers like banks and money exchange companies, taxes will impact the cost of goods and that the majority of expats have low incomes.

Although seconding the legislative committee’s concern about creating new sources of income, Finance Minister Nayef Al-Hajraf highlighted the danger of constitutional violations by such proposals. He also stressed that measures taken to create new sources of income should be done with more comprehensive views of financial and economic reforms. He noted that rushing towards economic reform measures without understanding the mechanisms and how they would be applied will impede the government from performing its executive role.

Commenting on the issue, the Central Bank said the proposals have some technical and financial loopholes that should be reconsidered and dealt with. The Central Bank argued that economic reform should be done through reforming the state’s treasury in general through re-pricing state-provided services and goods that are underpriced and lead to much waste and overuse.

The bank also pointed out that the total figure of KD 4.14 billion reported as expats’ remittances is misleading, as many expats have been making remittances on behalf of citizens for trade and commercial reasons. The bank explained these remittances include sums sent to non-labor exporting countries such as the EU, the US and the UAE.

Furthermore, the Central Bank noted that taxing expats’ personal remittances will affect domestic helpers and lead to demands of pay hikes. It also warned that taxing commercial remittances will lead to an increase in prices, which will negatively affect citizens. The bank also warned that such taxes will force expats to make illegal remittances and create a black market that will affect the money exchange market and weaken the Central Bank’s financial control.

The Central Bank added that this tax will violate article 15 of law number 32/1968 pertaining currency, the Central Bank and regulation of the banking system, which states that it is one of the Central Bank’s duties “to endeavor to secure the stability of the Kuwaiti currency and its free convertibility into foreign currencies”. In addition, the bank reminded that Kuwait is a member of the IMF since it joined it on Sept 3, 1962, and stressed that article 8 of the IMF treaty states: “No member shall, without the approval of the Fund, impose restrictions on the making of payments and transfers for current international transactions”. The bank added that since expats’ remittances are current international transactions, this makes imposing such taxes or fees illegal and requires IMF’s approval.

Notably, the proposal on taxing expats’ remittances includes the following articles:
1- Remittances made by expats residing in Kuwait will be taxed regardless of the currency transferred.
2- Remittances related to treaties on protecting investments and capital movement will be exempted.
3- Remittances will be taxed by 1 percent for sums up to KD 99, 2 percent for sums between KD 100 to 299, 3 to 4 percent for sums between KD 300-499 and 4 to 5 percent for sums more than KD 500.
4- Supervised by the Central Bank, certified banks and money exchange companies will send the tax value to the finance ministry.
5- Violators of the previous article will be penalized a maximum of KD 10,000. Those who make remittances outside the certified banks or exchanges will be penalized by up to five years in prison and a fine not less than twice the sum transferred.
6- Based on the presentation made by the finance minister, the Cabinet will issue the law’s executive charter within six months of publishing it in the official gazette.
7- The prime minister and finance minister will, each within his/her jurisdiction, put this law into practice.

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