Kuwait committee rejects tax on remittances

A Kuwaiti parliamentary committee has rejected four proposals to impose taxes on remittances, saying they were unconstitutional.

One proposal said taxes should be imposed only on foreigners transferring money to their home countries while another said they should be applied to both expatriates and Kuwaitis, the Legal and Legislative Committee said.

Another proposal stipulated prison terms for those who do not comply with the law, the committee added.

“In such cases, who is the violator? Is it the financial company that allowed the transfer or is it the applicant? Since the punitive measures were not clear, the proposal was rejected as unconstitutional,” the committee was quoted by Kuwaiti daily Al Jareeda as saying on Tuesday.

The committee’s rejection of the tax will be reviewed by the Financial and Economic Affairs Committee and the final decision will be made by parliament.

Kuwait is home to around 3.1 million expatriates, mainly from South Asia, who transfer around $14 billion annually to their families in their home countries.

Several lawmakers said the state should impose taxes to boost its non-oil revenues and help finance the budget.

MP Safa Al Hashem spearheaded the campaign to press for taxing remittances by foreigners, repeatedly arguing it would limit the amount of cash transferred out of the country.

In her proposal, Al Hashem, the only woman in the 50-member parliament, said the tax should be between three and five per cent in order to take into consideration the differences between foreigners with low income, such as drivers and domestic helpers, and others who usually remit higher amounts.

However, her calls failed to convince the governor of Kuwait’s Central Bank.

“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 in the media are exaggerated. We must take into consideration that the imposition of such a tax entails operational and administrative costs and 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.”

Al Hashem rejected the governor’s statement as “purely political” and “a part of the policy of courtesy pursued by the government”.

“He was wrong when he said the tax would not constitute a source of income. In fact, it is exactly the opposite. The remittances by expatriates are $14 billion and the imposition of taxes of three to five per cent will mean that 0.03 per cent of the value of the remittances will constitute an additional income for the state.”

“It is normal that some money exchangers would be unhappy about the tax on remittances because it would mean less money gained for them. As for the claim that the tax would create a parallel or a black market, the government, the Central Bank and the Ministry of Finance have to assume their responsibilities and ensure a tight monitoring and control of the situation,” she said.

Lawmakers who opposed the proposal to introduce a tax on remittances assailed it as “nonsensical” and argued it would have a negative effect on both Kuwaitis and foreigners and would exacerbate negative sentiment within 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 more challenging economically for expatriates who have been legally recruited nor do we accept threatening them every now and then with deportation,” they said.

MP Mohammad Al Hayef said imposing taxes on remittances was a violation of Islamic principles.

“In Islam, people who earn 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 illicit money transfers,” he said.