On Sunday, the Majlis Al Shura approved a plan for a two per cent tax on the money sent home by expatriates. The move, which could bring in OMR60 million per year, was included in a raft of measures designed to help Oman balance its budget in the face of falling oil revenues.
Now, the plan has to be considered by the State Council, but even within the Majlis Al Shura there is divided opinion with some members voting against the majority who backed the move.
"I personally disagree with a tax on remittances of expatriate workers. The tax collected from them is not going to help the Omani economy much in overcoming the forecast revenue fall. A low-paid worker will not be able to bear the excess tax. He will pass it on to the sponsor. So, eventually, the sponsor or nationals will have to bear the amount. It will result in direct tax," said Tawfiq Al Lawati, Shura member.
"Even though the Shura has okayed taxing remittances of migrant workers, it was agreed only after voting. A few members opposed it," he added.
In a report issued by the Central Bank of Oman in July this year, the remittances over the past five years were OMR13,621 billion, including OMR2.04 billion in 2009, OMR2.193 billion, in 2010, OMR2.774 billion in 2011 in addition to OMR 3.109 billion in 2012 and OMR3.502 billion in 2013.
"The proposed 2 per cent tax will help the nation to overcome the fall in the revenues up to an extent and will help more money to be circulated in the Omani market. But at the same time, low paid workers will be affected and money exchange houses may lose business," Anvwar Al Balushi, chairman of Anvwar Asian Investment Group, told Times of Oman.
Last year, the United Arab Emirates also mulled imposing a tax on remittances of migrant workers.
"This might be seen as an unwelcome sign for expatriates, especially when they came to the country knowing that it was tax free. In the long run it could have an adverse impact on the economy, depending on the flow of expatriates into the country," said Mohammed Alardhi, chairman of the National Bank of Oman.
"It is completely the prerogative of the nation to levy taxes for the growth and development of the nation. If the government decides to impose a tax on outward remittances, we will have to follow it," said Adeeb Ahamed, managing director of Asia Express Exchange.
"However, it must be understood that a sizeable chunk of the expatriates are employed in the private sectors and most of them are blue collar workers. Levying a two per cent tax on the remittances of the lower income group might burden them," he added.
The Times of Oman Facebook page received more than 100 comments from concerned workers who echoed the calls to protect the poorest from the levy.
Tanvir Faruk was just one of them, saying, "Taxing expatriate workers has its pros and cons. It will certainly improve the budget deficit of Oman and fill its coffers but will have a big impact on the thousands of blue collar workers already struggling to make a living. I think lower income groups whose salary is say less than OMR100 a month should be exempted from it."
Expatriate social workers also said that if the Government wants to impose the tax there should be a minimum level. "Let the low-paid workers be exempted. Let the Government tax those who are sending bigger amounts home. Taxing a worker who is sending OMR100 every month will destablise his budget badly," said some.
A tax expert from Ernst and Young in Oman said that there are two ways to impose a tax on remittances.
"The first is to tax wages assuming that a large share would be used as remittances. In that case, a tax on remittance is essentially an income tax. Another way is to tax the act of sending money at money transfer houses. Interestingly, a study proved that remittance outflows exert deflationary pressures on inflation. Thus a positive effect is there, apart from the contribution of tax to the budget," said Manjot Singh, executive director of Business Tax Advisory Services in Ernst and Young.
"However, the process of implementation of remittance tax requires a comprehensive framework, to be effective," he added.
On the downside for Oman, he said that remittance tax drives the flows to informal channels.
"Moreover, it could make highly skilled manpower difficult to attract and more expensive for the already struggling businesses in Oman," he added.
According to reports from global bodies, this year, officially recorded remittance flows to developing countries are expected to reach $435 billion — 5 per cent higher than in 2013.
