The pros and cons of expat remittance taxes in Saudi Arabia
The time when Gulf remains a bastion of tax-free work will be gone and introduction of taxes will become the norm rather than the exception
A collective sigh of relief was felt by Saudi-based expatriates following yet another announcement that there were no plans to impose a new tax on foreign workers’ remittances. The Saudi Ministry of Finance statement was clear: Saudi Arabia is not planning to impose a new tax on expatriate remittances.
This denial stems from the deliberations of some members of the Saudi Shoura or Consultative Council last month. The Council said it was considering imposing a tax of up to six percent on expatriate remittances in the first year and gradually decrease to 2 percent from the fifth year onward. Following the Ministry of Finance denial, the Shoura Council withdrew its own proposal, with 86 members opposing the tax and 33 in favor.
Once again the seeming root was cause was to try and stem some of the outward remittance capital flow from the Kingdom, despite some evidence that these have begun to fall back. According to Saudi Arabian Monetary Authority (SAMA) official data, remittance outflows from expatriates in Saudi Arabia fell 4 percent year-on-year (YoY) to SAR 138.4 billion in the first 11 months of 2016 and dropped SAR 12.11 billion in November, down by 8 percent YoY.
In order to assuage the fears of foreign companies who are being encouraged to invest in the Kingdom’s ambitious Vision 2030 program through FDI inflows, the Ministry of Finance said on its Twitter account that the country supports the free movement of capital to and from the kingdom in line with international standards.
The fluctuating fortunes of oil revenues are a fact of life that the Gulf countries have now to live with, whether there is an OPEC and non- OPEC agreement in place or not to maintain some firmer level of pricesDr. Mohamed Ramady
The feeling of joy will be short-lived, however, as Saudi Arabia and other GCC countries mull a range of new value added taxes on so called “sin products” like tobacco and fizzy drinks and possibly extend these to other categories on both nationals and expatriates, as well as reducing subsidies and raising prices on utility charges in an effort to balance their budgets.
Other measures include imposing fees for government related services, especially on expatriates and the 2017 Saudi budget unveiled a host of such measures whereby starting from July 2017 a fee of SAR 100 will be paid on a monthly basis, for every dependent or sponsored person rising to SR200 in 2018, SR300 and SR400 per month in 2019 and 2020.
The kingdom expects to generate nearly SR44 billion in revenue from this tax. The move, along with imposition of an increased annual scale of fees on the number of foreign workers employed by Saudi companies, is ostensibly aimed at incentivizing Saudi companies to hire locally.
The fluctuating fortunes of oil revenues are a fact of life that the Gulf countries have now to live with, whether there is an OPEC and non- OPEC agreement in place or not to maintain some firmer level of prices.
Bastion of tax-free work
As such, the time when the Gulf remains a bastion of tax-free work and low fees and charges will be gone and the introduction of taxes will become the norm rather than the exception, despite yet another denial from the Saudi Ministry of Finance that the Kingdom was considering imposing an expatriate income tax.
Governments across the world have the sovereign right and do impose a raft of taxes on their citizens, and it is also the right of the Gulf countries to do the same. The Benjamin Franklin saying that death and taxes are the only certainty in life is an apt one, but how equitable it is and the method of application, whether progressive rate of taxes as income goes higher or a flat rate are key questions for taxation to be widely accepted by society and make them willing tax paying citizens.
In the Gulf, with its unique representation system and Consultative Councils, there is now a more definite move toward societal inclusiveness and transparency and these are now enshrined in all the various Vision and Mission statements. Knowing where and how taxes are being spent will assure citizens that these are indeed going into areas of most concern such as health, education, welfare and local infrastructure.
As for expatriates, assuring them that part of their remittance taxes and fee charges are going towards their health and dependents schooling will go a long way in reducing the current level of uncertainties, as many are considering sending their dependents back home, thus reducing local consumption of goods and services, or seeking alternative methods of remittance transfers, all unintended consequences of the introduction of such taxes, fees and charges.
This brings us back to yet another famous saying attributed to Colbert, that “the art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least amount of hissing.”
Dr. Mohamed Ramady is an energy economist and geo-political expert on the GCC and former Professor at King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia.