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Trump’s wall and taxing remittance
April 1, 2017, 5:02 pm
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US President Donald Trump’s brilliant idea to build a 1,600-km long wall along the US-Mexican border to keep out illegal Mexican immigrants is just as ineffectual as Kuwaiti lawmaker Safa Al Hashem’s call for taxing remittances of foreign workers.

The US president and the Kuwaiti lawmaker both claim their aim is to keep out illegal migrants who unduly access the country’s social care resources and expropriate jobs from national manpower. In America, Trump’s wall has run into a funding problem. Building the magnificent wall would cost the American taxpayer somewhere between US$20 and 30 billion — money which the Trump administration is finding hard to find.

Recent simulations by the United States Government Accountability Office suggest that a potential fine of 7 percent on remitters without legal status in the US would raise less than $1 billion in revenue, and chances are the revenue would fall below the cost of tax administration to administer and enforce the tax.

Even if we assume that is $1 billion in the Trump Wall kitty, we still need to find another couple of billions before the concrete pumps will even begin moving to the border. But the administration’s attempts to find more funds by cutting medical and other social care to those who need it the most and can least afford it were recently trumped by lawmakers in the Senate.

And, though he had promised to make the Mexican government pay for the wall during his election campaign, President Trump failed to convince his Mexican counterpart President Enrique Peña Nieto about the merits of the wall, even after he pointed out the wall’s potential to keep out unsavory Americans.

Moving to the Middle-East, and specifically to lawmaker Safa Al-Hashem’s repeated calls to tax the remittances of expatriates, we find that it is just another bad idea that lacks any merit other than it plays well to her electoral constituency.

Here, we present not just one, but six reasons on why taxing outward remittances is a stupendously flawed idea. A tax on remittances will raise the cost of remittances; this will be in direct contravention to the G20 commitments and the United Nations Sustainable Development Goals, to which Kuwait is a signatory. It especially contravenes with the Sustainable Development Goal #10 which calls for reducing remittance costs and increasing financial inclusion.

Poor migrant workers are highly sensitive to the costs of remittances. A tax on remittances will drive these flows to unregulated, informal channels, which not only reduces the tax revenue with the upcoming VAT in 2018, but also increases the cost of tax administration and encourages informal channels of money flows that raise security risks.

A tax on remittances, especially if it is applied selectively to the nationals of a country or a region, can redirect flows through third countries. The US ban on remittances to Iran has forced Iranians in the United States to send money through Europe and elsewhere.

Remittance channels are used also for small-value transfers for purposes of trade, tourism, investment and philanthropy, these latter variables will also be impacted by a tax on remittances. Revenue raised from a tax on remittances will be negligible relative to Kuwait’s revenues. The International Monetary Fund (IMF) recently estimated that a remittance tax of 5 percent across the Gulf Cooperation Council (GCC) states would result in revenue of around $4 billion or 0.3 percent of GDP of the GCC countries in 2016.

A tax on remittances may drive expatriate employees and entrepreneurs to other countries with lower taxes. The IMF notes that in the past, such taxes have not worked. In Gabon (in 2008) and Palau (in 2013), tax collections were found to be insignificant.

Those are just five reasons why taxing outward remittance is not such a “eureka” discovery; we have several more if anyone would be interested to know.


 

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