THE Shura Council unanimously rejected a move by MPs to impose a two per cent tax on each expat remittance.
The legislation has been referred back to Parliament for a second review.
Should MPs insist on the tax and should the Shura Council insist on rejecting it, then a National Assembly session of both chambers will be held for a joint vote on the subject.
The Shura Council’s financial and economic affairs committee filed a comprehensive report following three meetings with officials from the Finance and National Economy Ministry (National Bureau for Revenue), the Central Bank of Bahrain (CBB), the Bahrain Chamber, and the Bahrain Association of Banks (BAB) as well as a representative from the foreign exchange companies.
Committee secretary Dr Bassam Albinmohammed said both the options – for and against – were considered.
Mr Albinmohammed
“The negatives far outweighed the positives and the proposal was found impractical,” he said.
“The expected revenue from 2pc is low and doesn’t constitute as proper government income, while the damage to proper revenues from other related avenues would be grave,” he added.
“Around 72pc of expats earn less than BD200 a month and they will seek alternative illegal channels to send money.
“It means that either employers will have to increase wages or increase the cost of service.
“Besides, the move could encourage money laundering and result in losses for money transfer agencies ... the list goes on.”
Committee chairman Khalid Al Maskati said many factors had been overlooked by the MPs.
“This legislation will only reduce remittances made through official channels in favour of illegal money transfer systems,” he added.
“It will also encourage money laundering and the rise of blackmarket practices or unauthorised cryptocurrencies.”
He added that the proposed legislation contradicts mutual and international agreements and conventions and would harm plans to attract and encourage investments.
“For instance, adopting the legislation would mean breaching the Unified Arab Investment Agreement which disallows imposing any restrictions – whether administrative, legal or financial – on Arab capital and investments.”
Meanwhile, Shura’s legislative and legal affairs committee has warned that the legislation could be unconstitutional.
By law, the government was obliged to draft the Parliament-presented legislation within six months. However, it has asserted that a remittance tax would be unfair and ‘unconstitutional’.
Finance and National Economy Ministry officials 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 officials 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,” it added.
The proposed law also stipulates that the tax shall be paid during the transfer process at authorised financial institutions; the National Bureau of Revenue shall collect 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 ministry officials.
“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 ministry 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 added.
“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.”
Ministry officials said the legislation hurts Bahrain’s plans to attract investment and global brands and companies.
“We are in a competitive region and have to be considered as a strong choice for investments and this levy doesn’t help achieve that,” they added.
CBB officials said the move would create a black market for money transfers as expats or their employers would look for ways to evade the tax.
“The legislation has no exemptions and also includes expats in leadership positions who earn high wages in companies and banks headquartered in Bahrain. It could deter the progress of financial activities, should they opt out of the country.
“Expats also cover GCC nationals and a tax for all would be catastrophic with moves underway to integrate citizens of the six nations.”
The Bahrain Chamber, BAB and exchange companies have also rejected the proposal.
mohammed@gdnmedia.bh
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