Remittance tax on agenda – Fee in exchange for providing services to Expats

IMF Section 2 – Article 8 “No member may impose restrictions without the approval of the International Monetary Fund on payments and remittances in respect of current international transactions”

KUWAIT CITY, April 15: The thirty-first report of the National Assembly’s Finance and Economic Committee on bills on taxation of expatriate remittances is included on the agenda of Tuesday’s session.

The committee pointed out in its report the aim of these bills is to find new sources of income by imposing tax on foreign remittances of expatriates, as a fee in exchange for the provision of services, health and educational facilities and others.

The committee added the addition of subsidized materials such as gasoline, gas and electricity will undoubtedly in the end reflect on the quality of services to be provided to residents in Kuwait.

However, the Legislative Committee has unanimously rejected the bills saying there is a suspicion the bills violate the Constitution through discrimination in the text of the tax on a specific category, the category of expatriates living in the country.

The imposition of a tax on foreign transfers will also lead to the creation of an informal market outside the official market for banks and exchange companies, in addition to the tax on transfers will be reflected on the cost of goods, the legislative committee said.

The committee also cited most of the groups that make money transfers are limited income earners. While the Ministry of Finance underlined the risk of having a constitutional suspicion in the bills under discussion, citing what was mentioned in the report of the Legislative and Legal Affairs Committee. The ministry stressed on the importance of laws that contribute to creating additional revenues for the general budget.

However, such measures must be within systematic frameworks that take into account a comprehensive view of financial and economic reform because any economic reform without knowing its mechanisms and methods of implementation will result in the government’s inability to play its executive role.

In his opinion, the Governor of the Central Bank said the bills have several technical and financial shortcomings which should be studied and addressed in order to achieve the purpose and usefulness of the bills.

The beginning of economic reform in Kuwait, the governor said, is to reform the public finances of the state and the best way to do this is to re-price services and goods that are offered at low prices that will lead to their depletion and their wasteful use.

For the total number of remittances of expatriate workers of (4.14 billion dinars) is a deceptive number, there are remittances of citizens which are done by expatriates and there are remittances for commercial purposes and not personal, and this figure includes transfers to non-exporting countries for expatriate workers such as the European Union and the United States and United Arab Emirates.

These taxes or fees if they are personal transfers such as remittances of domestic workers, then it will lead to a demand for wage increases and if it is for commercial purposes it will lead to an increase in the value of goods and in both cases it will affect the citizen.

The imposition of fees or taxes will lead to pushing expatriates to make transfers in informal ways, which create a black market and will hurt the exchange market and weaken the financial supervision of the Central Bank The Governor noted that there may be two legal impediments to implementing these bills.

One, he said, the bills are opposed as per Article 15 of the Law No. 32/1968 concerning monetary and the Central Bank of Kuwait and the regulation of the banking profession, which states that the purpose of the Central Bank is to ensure the stability of Kuwaiti currency and the freedom to transfer it to other foreign currencies.

Remittances

And two, Kuwait has been a member of the International Monetary Fund since its joining on Sept 13, 1962. Section 2 of Article 8 of the general obligations of the members of the IMF Convention states, “No member may impose restrictions without the approval of the International Monetary Fund on payments and remittances in respect of current international transactions,” since remittances are included in current transfers, the imposition of such taxes on such transfers requires the approval of the International Monetary Fund.

Meanwhile, Foreign Affairs Committee of the National Assembly has submitted to the Parliament eight reports on draft laws approving certain agreements between Kuwait and various countries.

The agreements approved by the committee include a protocol to amend an agreement between the government of Kuwait and the government of the Republic of Turkey to avoid double taxation in relation to taxes on income and capital and a draft law approving the mutual administrative assistance agreement in tax matters.

The committee also approved a draft law approving an agreement between the government of Kuwait and the North Atlantic Treaty Organization (NATO) on the establishment, mandate and operation of the NATO Regional Center under the Istanbul Cooperation Initiative.

It also approved a memorandum of understanding between Kuwait and the United Nations on supporting the implementation of the work plan of the Office of the Secretary-General’s Special Envoy for Youth, as well as a draft law approving the statute of the Arab Environment Facility of the League of Arab States and a bill approving a technical cooperation agreement between the Government of Kuwait and the Government Japan.

Furthermore, the Finance and Economic Affairs Committee approved the proposal of MP Saleh Ashour to remove the abandoned chalets in Abu Halifa in a civilized manner and to relinquish them to the Public Institutions for Housing Welfare to distribute them to Kuwaiti women.