MPs approve 2% tax on expat remittances in Bahrain

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Parliament has unanimously approved a legislation to tax expatriate remittances despite strong opposition from the government.

During its weekly session yesterday, Parliament Speaker Ahmed Al Musallam led the “yes” vote to impose a two per cent levy on the total amount remitted each time by an expatriate individual.

It will be now reviewed and voted on by the Shura Council after Mr Al Musallam referred it urgently to the upper chamber.

The government was obliged by law to draft the Parliament-presented legislation within six months.

However, it has asserted that a remittance tax would be unfair and ‘unconstitutional’.

In an explanatory letter attached to the bill, the government said that the levy would contradict the basic principles of freedom of money transfer.

It would also violate the concept of tax as referenced by the Constitutional Court, as such levies should be inclusive, without anyone being singled out, which is not the case with this legislation, the government pointed out.

“Bahrain has signed many international agreements and mutual pacts with countries across the world on the freedom of money transfer, which it is committed not to breach,” the government said in a written reply to the MPs.

The proposed law also stipulates that the tax shall be paid during the transfer process at authorised financial institutions, with the National Bureau of Revenue collecting this tax from those institutions.

“The move will have a negative impact on the economy, in general, and the financial and commercial sectors, in particular,” said the government.

“Imposing such a tax would cause massive damage as it will lead to the emergence of illegal transfer channels.

“The World Bank and the International Monetary Fund have, in numerous studies, shown that countries that took the approach have faced trouble controlling transfers and we do not want the same situation here.”

The government added that such taxes wouldn’t be paid by workers and would be forced on sponsors which would add to the burden on businessmen.

“Such taxes will hugely affect expatriates in leadership positions in companies and banks in Bahrain and it could even lead to them moving to other countries,” it said.

“Bahrain is working towards being a more competitive regional hub. There are also companies that make regular transfers every day, in bulk, and such tax is just illogical and frustrating for them.

“Also, it is very difficult to differentiate between transactions – whether they are for purchases, services or money sent to families or relatives.”

Parliament second deputy speaker Ahmed Qarata said the government came up with every excuse possible in the book to defend expatriates’ rights.

“The government came up with countless constitutional and legal clauses as excuses to ensure it protects expatriates’ rights and stop the legislation from going ahead,” he said.

“So, where was the government in its strong defence to the welfare of people when it imposed 5pc and then 10pc VAT in Bahrain?

“OK, let’s say it is not a tax and it is fees, in both cases it is Parliament’s right to impose or not to impose such payments, so their defence is pointless.”

Parliament and Shura Council Affairs Minister Ghanim Al Buainain said the government didn’t say the move was “unconstitutional”, but stated “possible unconstitutionality”.

However, Dr Ali Al Nuaimi read out the government letter that clearly stated: “Unconstitutional legislation”.

“Imposing tax on financial transfers for foreigners is constitutionally sound,” said Dr Al Nuaimi, who runs his own legal consultancy firm.

“Such interpretation of law is a right with only the Constitutional Court and government justifications for rejecting the legislation are unrealistic,” he explained.

“If the government’s justifications are considered, the 5pc VAT, which has now become 10pc, is not compatible with the Constitution.

“The remittances law does not affect the freedom of capital in investments, as stated in the government’s justifications, but rather aligns with the constitutional texts of Parliament deciding on whether to impose or not to impose taxes or fees.”

He mentioned that the government, in its response, stated that if this law is implemented, the private sector will face financial obligations on business owners, leading to an increase in prices.

“However, it is surprising that this opinion was not included when new pension rules were approved with obligatory monthly contributions increasing to exceed 24pc.”

Strategic Thinking Bloc spokesman Khalid Bu Onk said the government was tailoring constitutional and legal texts to match its opinions.

“Now expats are poor and the economy will suffer, so where was that defence when VAT got imposed on everyone?”

Jalila Al Sayed commented that the tax on remittances had more negatives than positives.

“Channels for black market transactions will be created, financial and economic problems will arise, amongst several other negatives.

“But, they can be overcome if there are precise implementation mechanisms which address all loopholes in the legislation.”

The Bahrain Chamber and Bahrain Businessmen’s Association also rejected the proposal.