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Kuwait’s tax on remittances discourages FDI inflow

Kuwait’s tax on remittances discourages FDI inflow

KUWAIT CITY: Kuwait Parliament’s financial committee approved bills earlier this month stipulating that expatriates’ remittances should be taxed, analysts voiced concerns that the move could lower inflows of foreign direct investment into the country and harm Kuwait’s financial position as an open market.

Although the bill has been opposed by the legislative committee, it will be referred to the government and, if approved, would become law if accepted by the cabinet, making Kuwait the first Gulf country to impose a tax on remittances.

 The proposed bills set a 1 to 5 percent tax on remittances based on the amount of money being transferred. Proceeds of 70 million Kuwait dinars per year are expected to be raised from the fees on remittances.Remittances below 99 Kuwaiti dinars would incur a 1 percent tax, while those above 500 Kuwaiti dinars would incur a maximum of 5 percent.Even the Central Bank of Kuwait stated concerns that the tax would create a parallel black market, harm the efforts to combat money laundering, and weaken the state’s financial position.

The second problem is that such a tax restricts capital movement and is effectively a capital control mechanism, according to Alrashidi.

“Such actions causes capital to flee (the) local market and becomes a deterrent for new capital coming to the country. Therefore, it will reduce foreign direct investments in Kuwait.