FEAR REMITTANCE TAX MAY DENT KUWAIT HUB HOPES

Boo hoo....

FEAR REMITTANCE TAX MAY DENT KUWAIT HUB HOPES – DECLINE IN REMITTANCES

Levy may dampen investment interest – Bill seen to risk international reputation

Arab Times

KUWAIT CITY, April 4: The government is determined in its stance to reject the parliamentary bill to levy the remittances of expatriates even though it was approved by the Parliament’s Finance Committee last Sunday.

According to sources, the government expressed concern over the impacts of such a move on the goal to transform Kuwait into a financial and commercial hub.

There is a need to study the matter from all angles related to application and procedures, and the changes it will bring about.

The stance of the government, particularly of Ministry of Finance and the Central Bank of Kuwait, is based on seven factors. They are:

• Taxes weaken the financial stability of the state
• The law poses risks to Kuwait’s international reputation
• It weakens the ability of Kuwait to combat money laundering
• Controlling the emergence and growth of black market in the banking sector will be difficult
• Controlling the movement of remittances from the banking sector will be difficult
• It will directly impact the operations aimed at attracting foreign investments
• The mechanism for applying taxes and the relevant work processes in the banks to carry out the deduction process during the remittances are not clear

The sources explained that the government of Kuwait is keen about working on transforming Kuwait into a financial and commercial hub through the launch of major developmental projects with the aim of attracting foreign investors and improving the status of Kuwait.

However, the adoption of the bill to levy the remittances of expatriates could negatively affect the fulfillment of this goal.

Decline in remittances 
The remittances of expatriates in 2017 reached a total of KD 4.1 billion. However, compared to the remittances worth KD 4.56 billion sent in 2016, 2017 registered a decline of ten percent.

In 2014, the remittances sent were a total of KD 5.1 billion, which was the highest in seven years, in line with a record increase in the oil prices.

The remittances of expatriates from Kuwait equal nearly ten percent of the local revenues and exceed one-third of the total revenues of Kuwait.

In the last two years, the remittances of expatriates in Kuwait recorded a huge fluctuation. During the third quarter of last year, the remittances had reduced by 8.1 percent, reaching KD 940 million. This was the first time since 2012 that the remittances are less than one billion.

Money laundering and black market
In the Basel Anti-Money Laundering (AML) Index of 2017, Kuwait came third among the Gulf countries and fourth among the MENA countries in terms of fighting money laundering and financial terrorism.

Qatar came first and the United Arab Emirates was last in the Gulf level. In the index issued recently, Kuwait recorded 5.53 points to occupy 90th rank in the international level.

Experts highlighted the negative impacts of applying the parliamentary bill on the banking sector, as it may lead to the emergence of a black market for expatriates to remit their earnings through “shadow companies”, which the supervisory bodies are trying to eliminate.

International warnings 

International financial institutions are warning against imposing taxes on the remittances of expatriates. The International Monetary Fund (IMF) stressed in its report that levying the remittances of expatriates will have negative impacts on the private sector, and will increase the cost of production.

However, if the move is accompanied with increase in salaries, it will reduce the competitive ability of the private sector. IMF said the move will also lead to absence of supervision and emergence of black market.

Levying the remittances of expatriates will eventually prove to be ineffective and difficult to manage because it will lead to transfer of remittances from the banking system and encourage lack of financial intervention.

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The so called "economist"/"financial expert" with a PHd who was pushing for this wasn't aware of the repercussions?