Show me the money

You know the apocalypse is very near when I am writing about taxation and economics. Now, what prompted this post is Taxation on expat remittances in Oman here. Tax is one of the very few aspects of life which are certain alongside death according to the well known saying. However Middle East is an exception. For ages, people have earned tax free income in this region. Foremost, any regulation, not just in the area of taxes, in Oman or Middle East in general, is a good idea according to me and differential taxation for nationals and expatriates is normal in most countries. There are many unregulated areas in every stratum of life in Oman. This affects and benefits everyone in some way but laws and regulations, when fair, are the best way to bring about standardization and equivalence.   A microscopic example would be- I required an NOC from ROP for some paperwork. While there have never been any surprises in what the ROP itself would charge, the charges to just “apply” to the ROP for such an NOC varies from one organization/ person to another varies from say, zero to OMR150. There is no receipt, or even if there is, it is just as per the whims of the private organization. The lawlessness can amaze you at times.  Regulations and standardization of rules, fees, and charges are great way to put a check to this. The unfortunate thing however would be when regulations are made only for a section of the society. If taxation is the way to go, then a full fledged tax system with proper administration is the answer:-

  •  Tax will put a check on corruption and black money (enough said). Preventive regulation is better than to go policing around the matter decades later and investigating anti-graft cases, in which, many who also made hay would have escaped.
  • A slab based taxation system that is appropriate for people of different levels of income will reduce the burden that a flat taxation rate will on the low income groups. This is also vaguely in line with Islamic law’s perspective on taxation. “Islamic taxation system does not tax income, but taxes wealth.”
  • Also a taxation system on expats will probably bring in the opinion that the expats are giving back something to the resident country and not just their home country. This  also helps to contest similar points that are attributed as merits of nationalization.

Now the issue in light is that Oman has proposed to levy taxes on remittances by expats as one of the many measures to minimize its expected deficit due to fall in oil prices. A small fact of pride here is that while one part of the world plans to meet its fiscal deficit by taxing remittances by expat workforce (rumoured that UAE / Saudi may follow suit) , for the world’s largest recipient of remittances – India, the aggregate of annual remittances (US$ 71 Bn, 2013), not merely a tax % on it, amounts to only a fraction, less than 3.3% of the India’s GDP (US$ 1.8 Trillion) in 2013. And only 0.42% of the GDP of the second largest recipient of worker’s remittances- China. Off tangent trivia, random statistics of unemployment rates in the aforementioned countries- India – 5.2%, Oman- 15%, China – 4.1%.(2013 figures, . Also, neither of the developing super powers do great favours for the unemployed, just saying. Nevertheless, though remittances may not help the home countries significantly at a macro-eco level, they are very important at the welfare/ micro-economic level. (Discussed again later). Especially for countries like Bangladesh or Philippines. More so, since these countries do not have great perks for their unemployed or poor and they have greater purchasing power in comparison to Oman, such remittances go a long way for those back home. In recent times very stringent regulations have been imposed on jobs for expatriates such as differential pay structures for expats, visa restrictions etc. None of this actually contributes to “job creation” in the market. It is still the same old jobs now vacant. For a country that relies heavily on hydrocarbon revenues, that are not only exhaustible and volatile, taxing remittances is a short-term remedy considering all expats are fast losing their jobs anyway and this measure won’t contribute much to developing the country in the long run. And despite the government’s efforts to create employment and one section of the local community working very hard or taking up entrepreneurship, choosy youngsters declining the new opportunities that are available has added on to inadequacy in the job market. Coming back to the topic, how much and for how long can an economy rely on remittances made by people who have as it is come out of their home country to make a living, to patch a fiscal deficit? I remember being asked at an internship to collect data on the percentage share of each local bank in the national “fees or commission charged by banks on remittances”. I only realized the data on remittances is too little to warrant conclusions, but its sensible to assume that remittances are a lucrative area for banks and governments alike. At a global level, volumes of remittances exceed ODAs and FDIs. “Around 12 percent of global remittances came from the six Gulf countries last year, with nearly half of this going to India.”

Remittances flow to developing countries.

But going back to the micro economic implications, say, from an NRI (Non Resident Indian) standpoint,

  • One hand a home country that has differential laws for all things NRI is a burden. Laws for NRIs are always framed assuming they are probably minting money abroad. They do not consider that a huge section of the NRI community are workforce that can neither afford to make their children afford college abroad nor pay NRI fee-structure in colleges in India.
  • Also recently CBEC (India) issued a circular for levying Service tax on the “fees or commissions charged by banks/MTSOs), which again will be passed on to remitters, though this is a very negligible % of the fee and not on the remittance amount.
  • Apart from altruistic motives behind remittances (which is the case for most of the low income work force), taxing remittances also affects those remittances made for self interest. E.g.: Fixed Deposits in India offer interest rates at 9% for residents as compared to less than 2% in FDs in the Middle East. This actually justifies repatriation for the fact that,despite the lack of job opportunities, differential remuneration, holidays, and other benefits, the hard earned income by NRIs cannot stay inside the country with little opportunities for investment

In conclusion, laws and regulations, when fair and effective, help any kind of economy. Selectively taxing only remittances will only slightly inconvenience expats in the short term, lead to illegal transfers or change form (gold, etc). From the standalone perspective on taxing remittances- it is fair for all the merits to its case- for money going out is of no use to Oman and also for the lifestyle one gets here. But this question is on the motive behind such move – How long can a developing economy depend on such income? A fair system of taxation for all will bring in revenues for the government; however will require a robust administration system. Most Middle East countries do not have independent institutions to handle taxation, instead have a treasury department. Formation of a body may be easy (can’t wait for local version of IRS-based jokes) but administration of tax collection is a huge arena that requires experience. The difference between new and experienced countries in the taxation or any legal regulatory arena is like parents with their first child Vs. Parents with their second and subsequent children. The first child is subject to curfews and rules of all kinds whereas the other kids have the luck of experienced parents who are aware of their children’s wishes despite their disapproval and can parent them with the understanding that out-and-out prohibition will only lead to them finding illegal ways to get what they want. Oman belonging to the former employs out and out prohibition in so many areas- simple example being VOIP/ free speech, etc. A more intelligent way of administration would be to capitalize the situation or using it to their advantages than imposing regulations that do not achieve any objective in the long run – Be it welfare or Revenue. Disclaimer: It’s the intention of this blog to stay in total compliance with the laws of the Sultanate of Oman. Any view that it is not so is due to an incorrect interpretation of the contents of the blog. Comments on the blog are the views of the person writing the comment and not the opinion of the blog or its author. Should an individual/organization wish that any content or comment be modified or removed, it will be considered at once. Contact by Email at : Or twitter : @bladenomics.


4 thoughts on “Show me the money

Leave a comment!

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s