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Government axes tax plans, even as remittances fall
July 28, 2018, 4:12 pm
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The head of the parliament’s financial and economic affairs committee, while discussing a draft bill in parliament to tax remittances made by foreigners in the country, blatantly claimed that expatriates were remitting in excess of KD19 billion each year. He pointed out that implementing a tax on this remittance would net the government around KD70 million annually.

However, in stark contrast to the statement by the learned lawmaker, a new report from the Central Bank show that total remittances from Kuwait in 2017 dropped by over 9 percent, from the KD4.56 billion in 2016 to KD4.14 billion last year. The statement also revealed that remittances during the first four months of 2018 stood at KD1.029 billion, indicating that total remittances this year would once again be in the KD4 billion range.

Assuming that the Central Bank has more accurate information on remittances made from the country, the clearly erroneous figures provided by the parliamentarian point to one of three possibilities, none of which reflect positively on the lawmaker. Either he did not verify the authenticity and veracity of the information before making the statement, or he deliberately provided the exaggerated figures for political grandstanding, or more likely, mathematical prowess is not one of the lawmaker’s stronger suits. Whatever the probable reasons behind the statement, they become all the more unjustifiable as the gentleman responsible for the statement heads the parliament’s powerful financial and economic affairs committee.

Expatriates are often the favorite punchbag of many parliamentarians who blame them for every conceivable fault in society. Foreign nationals are lambasted in parliament for creating joblessness among citizens by usurping public-sector jobs, they are accused of swamping hospitals and healthcare facilities and thereby denying services to citizens, they are blamed for the traffic congestions and accidents on roads, and even for the high-price of fish in the local market.

Suggestions made by lawmakers to curb growing expatriate population and rid society of the expat-menace include, throwing them out of government jobs, capping residency period of expatriates to 15 years, extending a quota for foreigners from each country, ensuring expatriates do not make up more than a quarter of local population, charging them exorbitantly for utilities and services such as healthcare, driving licenses and insurance. The latest solution to ‘smoke out’ expatriates is to tax their remittances.

In April, Kuwait’s parliamentary financial and economic affairs committee had approved a bill stipulating the imposition of a tax on remittances made by expatriates. The bill proposed a tax of one percent on remittances of up to KD99; two percent on remittances of KD100 – KD299; three percent on KD300 – KD499; and five percent on KD500 or more.

It is not quite clear how the chairman of the parliamentary financial and economic affairs committee computed his KD70 million in revenues from taxing remittances. If we calculate based on the purported KD19 billion in remittances and potential revenue of KD70 million, then the proposed tax rate would have to be only a paltry 0.375 percent. On the other hand, if we take an average of 2.75 percent from the tax slabs proposed by the financial committee, then the KD19 billion would net the government exchequer KD523 million; far more than the KD70 million calculated by the lawmaker.

Alternatively, if we go by the Central Bank’s reliable remittance figure of KD4.14 billion, a 2.75 percent flat remittance tax would have earned the government KD114 million in 2017 — just about enough to cover the salary of state-sector employees for three days. Wages, salaries, pensions and other benefits to government employees and retirees cost the exchequer around KD12 billion annually. 

Incidentally, in July the government reportedly decided to rescind the financial committee’s proposal to implement a remittance tax. This is no doubt a welcome respite, at least for the moment, to the much-maligned expatriate.

Parliamentarians and citizens alike need to realize that making expatriates the scapegoat for all the woes the country faces will only take them so far. Beyond that, they need to wake up and understand that the days of relying on oil receipts to sustain the country’s economy is fast running out. Diversifying the economy, cutting subsidies, rationalizing wages and trimming the bloated public-sector of national manpower, and making the workforce productive, creative and innovative, are probably more important to ensure the long-term sustainable development of the country than blaming and taxing expatriates.

 

Bad debt of retrenched expatriates hurt local banks

A major fall-out from the recent termination of many expatriates working in public-sector jobs is repaying the debts that some of these employees owe to banks in the country.

Latest report from the Central Bank shows that total bad debts of expatriates during the past four years reached a total of over KD454 million, a significant chunk of which was owned by expatriates working in public-sector jobs.

According to official statistics released by the Kuwait Civil Service Commission a total of 1,629 expatriates were terminated from government-sector jobs during the first six months of this year. Additional data from the Public Authority for Civil Information (PACI) show that at the end of 2017 there were a total of 447,200 employees in the public-sector, of whom 322,291 (72%) were Kuwaitis and 124,909 (28%) were expatriates. 

Most of the loans, around 85 percent, were taken out with local banks, while about 15 percent was from financial facilities companies. With Kuwaitization in public sector jobs gathering pace, it is expected that in the coming months there could be more layoffs of foreigners. This would probably increase the number of expatriates unable to fulfill their financial obligations to local banks.

Incidentally, in February of this year, ahead of the National and Liberation Days holidays, His Highness the Amir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah had benevolently ordered, on humanitarian grounds, the paying-off of all debts owed by citizens and expatriates who had been jailed on account of their dereliction in repaying loans.

 

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