Tax on remittances? Central bank governor says No
The negative economic impact of any tax on remittances will far outweigh any expected benefits, Kuwait’s central bank governor has said. The bank does not support taxes on remittances because their negative impact on the overall economy is far greater than the expected income, Mohammad Al Hashel said. The remittance figures being circulated on the media are exaggerated. We must take into consideration that the imposition of such a tax entails operational and administrative costs — and that expatriates will most likely resort to other channels to transfer their money to their home countries in a bid to avoid paying the extra fees. Such factors will make the actual revenues from the tax below expectations, he added.
‘Consumers will pay’
The tax on remittances used to import goods from abroad will also reflect negatively on their cost and consumers will have to pay more. Imposing a tax on remittances by expatriates with low income will also have a negative effect on Kuwait’s financial reputation and outlook and consequently on the vision to turn Kuwait into a financial and trade hub that attracts foreign investments, Al Hashel said in remarks carried by Kuwaiti daily Al Seyassah on Tuesday. Lawmakers in Kuwait have been pressing for taxing remittances, arguing that it would limit the amount of cash transferred out of the country to re-invest it in the local economy and would allow for extra revenues for the state. The calls found greater echoes after the election of a new parliament in November last year and the election of lawmakers supporting the idea of reducing the number of foreigners who make up two thirds of the total population in Kuwait. However, several lawmakers assailed the proposal assailed as “nonsensical” and argued that it would have negative impacts on both Kuwaitis and foreigners and would exacerbate feelings of hatred in the community.
We do understand the significance of discussing the issue of high numbers of foreigners living in Kuwait and the negative effects on the country’s demographics, but we cannot tolerate making life harder and economically more challenging for expatriates who have been legally recruited nor do we accept threatening them every now and them with deportation, the lawmakers were quoted as saying by Kuwaiti daily Al Rai in January. MP Mohammad Al Hayef said that imposing taxes on remittances was a violation of Islamic principles. In Islam, people who make money are requested to contribute 2.5 per cent of their income to the community under the pillar of Zakat, he said. However, Zakat is an annual duty while remittances can be made every month. Therefore, it is not acceptable from a religious perspective. At the same time, we have to appreciate that it is not fair to impose taxes on people who leave their country and live away from their family to make money and then they are asked to pay taxes on their remittances. We really need to be cautious because by imposing such a tax, we might be opening a window for money smuggling, he said.