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Money transfers spike 25% – Remittance tax seen harmful
April 8, 2018, 8:37 am
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Senior officials of the local exchange companies have warned of the negative and possibly catastrophic repercussions on the economy and the reputation of Kuwait if a tax is imposed on the remittances of expatriates.

The officials stressed it will create a permanent black market in the country since the vast majority of expatriate funds are out of the financial system.

During a visit to the local exchange companies to find out to what extent the crisis may affect Kuwait, which aspires in the coming period to become a financial and economic center, it was discovered the country will have to fight the black market and several other issues in addition to it, this will damage the reputation of the country.

Economic expert Mohammed Ramadan explained the decline in oil prices usually draws the attention to other sources of income, including remittances as an important source of income, especially that the GCC accounts for more than 20% of the total remittances in the world and this he said is illogical.

Kuwait, for example, is importing goods worth 3 times the value of remittances so it is not permissible to ask the exporter for a certain percentage of the value of exports or to impose certain fees on him. The same applies to the expatriate who collects his money through a certain number of working hours, so they cannot be asked for a fee or tax, Ramadan told the daily.

Ramadan stressed imposing a fee on expatriates or imposing a certain percentage tax on the amount is contrary to international norms, especially since expatriates do not have the right to own property in Kuwait like many countries and there is no suitable environment to bring the family.

Therefore, the expatriates are under obligation to provide money for the family back home. So instead of putting tax on remittances, there are better ways of making an expatriate spend the money in Kuwait, such as by providing him entertainment facilities and services and open the door for families of expatriates to live in the country instead of putting obstacles in their way. This way they will be able to spend their money in the country they live.

Ramadan added, the imposition of tax on the remittances will lead to the creation of a black market and the international experience is proof of that, especially as it affected the economy and income of these countries in a clear negative way.

This practice will also dent Kuwait’s relations with the labor-exporting countries to a great extent and violate the World Bank and IMF recommendations to reduce fees on remittances as much as possible.

Ramadan pointed out, the implementation of the tax will lead to an increase in prices of goods and services and will lead to increased inflation.

He pointed out the discrimination between the citizen and the expatriate will make the citizen a source of remittances, which will cause the state to lose revenues that may go in the pocket of the citizen instead of benefiting from it.

The tax was rejected in the UAE and Oman as they are inconsistent with international agreements, Ramadan said. Meanwhile, an official of the Nada Exchange Ahmed Wajdi said the fees that would be imposed on remittances will significantly affect the profits of exchange companies and will lead to a significant decline in business. He added, the earnings of exchange companies are historically declining whenever the black market controlled the currency and the most recent example is the Egyptian pound. Money changer, Emad Amin said many expatriates have come to exchange companies in the last few days to transfer their funds for fear of imposing fees on them and that the funds transferred in the past period increased by 25%.

He pointed out that the remittances will create a black market that will lead to a decline in the profits of the exchange companies and thus the loss of state revenues that go directly to the state through these companies. Meanwhile, the Al-Rai daily quoting a number of real estate experts, have warned that a tax on expatriate remittances will reduce the volume of credit facilities directed at foreign property purchases, putting additional strain on the liquidity surpluses in local banks. The experts explained the nod to impose this tax will reduce the appetite of residents to buy property in their countries to avoid additional fees that they will have to pay on each monthly installment. The experts also said if the tax is approved, the expatriates will have to recalculate their accounts to find the rate if interest on the loan, which amounts to about 6 percent, plus an additional tax that they will have to pay in most cases in addition to 5 percent they have to pay on money transfers exceeding KD 500. Another consideration is the negativity on the regulatory systems, especially the Central Bank of Kuwait, which fears that this tax will create a black market for remittances as some clients have to pay their installments outside the official banking system.

Perhaps the most concrete evidence is the Egyptian experiment, specifically before the decision to float the exchange rate of currency, where the regulatory agencies, whether local or in the Gulf states could not deal with the backdoor market of remittances, which snowballed during this period. Many entities and companies, the most recent of which is the ‘Bayan Investment’, has stressed on the seriousness of the measures for imposing tax on expatriate remittances, saying it is more beneficial for the public budget if law allows expatriates to own property just like other countries allow Kuwaitis to.

Of course, the consequences of these fees will not only be reflected in the credit market, but will also extend to the foreign real estate fairs sector, whose organizers are from Kuwait and international companies seeking to attract clients by offering additional advantages such as increased premiums and payment facilities but with a tax on expat remittances, organizing such fairs will decline.

A real estate expert said an expatriate who buys an apartment in his country for KD 10,000 will not accept to pay 5 percent tax in the form of remittance, but will rely on Kuwaiti companies that have subsidiaries outside the country to transfer his money. He added those who plan to buy apartments in their countries will reconsider their plans. 

 

 

 

 

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