Despite strong opposition from the government, parliament unanimously approved a bill to tax remittances from abroad.
During yesterday’s weekly session, Parliament Speaker Ahmed Al Musallam led a “yes” vote to impose a 2% tax on the total amount of each remittance made by individual expatriates.
It will now be considered and voted on by the Shura Council after Al Musallam urgently referred it to the Senate.
The government was required by law to draft a bill submitted to parliament within six months.
However, they argue that the remittance tax is unfair and “unconstitutional.”
In an explanatory note attached to the bill, the government said the tax violates the fundamental principle of freedom of remittances.
The government also points out that it violates the concept of tax mentioned by the Constitutional Court, and that such a levy should be inclusive without singling out anyone, which is not the case with this bill. did.
“Bahrain is a signatory to a number of international and reciprocal agreements with countries around the world regarding freedom of remittances and is committed not to violate them,” the government said in a written response to lawmakers.
The proposed law also provides that the tax will be paid during the remittance process at licensed financial institutions and that the National Revenue Department will collect this tax from these institutions.
“This move will have a negative impact on the economy in general, and the financial and commercial sectors in particular,” the government said.
“Imposing such a tax would cause huge harm as it would lead to the emergence of illegal remittance channels.
“The World Bank and International Monetary Fund have shown in numerous studies that countries that have adopted this approach face difficulties in managing remittances, and we do not want the same situation here.”
The government added that such taxes would not be paid by workers, but would be forced on sponsors, adding to the burden on businessmen.
“Such taxes would have a significant impact on foreign nationals in leadership positions in Bahrain’s companies and banks, and could even lead to emigration abroad,” the report said.
“Bahrain is working to become a more competitive regional hub. There are businesses that send out large amounts of remittances on a regular basis every day, and such taxes are completely irrational and frustrating for them.
“It is also very difficult to differentiate between transactions, such as purchases, services, and sending money to family and relatives.”
Second Deputy Speaker of Parliament Ahmed Karata said the government had come up with every possible excuse to defend the rights of expatriates.
“The government has come up with countless constitutional and legal provisions to ensure the protection of expatriate rights and as excuses to block implementation of the bill,” he said.
“So where did the government go when it imposed a 5% and then 10% value added tax in Bahrain when it was strongly protecting the welfare of its people?
“Okay, let’s say it’s a fee and not a tax. In either case, it’s Congress’s right to impose or not impose such a payment, so their defense is moot.”
Ghanim al-Buainain, Minister of State for Parliament and Shura Council Affairs, said the government had not said the measure was “unconstitutional” but said it “could be unconstitutional.”
However, Dr. Ali Al Nuaimi read out a government letter stating that the legislation is “unconstitutional.”
“It is constitutionally sound to tax financial transfers to foreigners,” said Dr Al Nuaimi, who runs his own legal consultancy firm.
“Interpretation of such laws is a right reserved only to the Constitutional Court, and the government’s justification for rejecting the bill is unrealistic,” he explained.
“If we consider the legitimacy of the government, the 5% value-added tax, which is currently 10%, does not conform to the constitution.
“As stated in the government’s justification, the Transfer Act does not affect the freedom of capital to invest, but rather is consistent with Parliament’s constitutional provisions in determining whether to impose taxes and fees. .”
He noted that the government said in its response that if the law comes into force, the private sector will have financial obligations to business owners, leading to higher prices.
“However, it is surprising that this opinion was not included when new pension rules were approved, increasing monthly contribution obligations to over 24%.”
Strategic Thinking Block spokesperson Khalid Bu Onk said the government was adjusting the constitution and legal provisions to suit its views.
“Now expats are poor and the economy will suffer. So where was the defense when VAT was imposed on everyone?”
Jalila Al Said commented that taxes on remittances had more negative than positive aspects.
“It will create channels for black market transactions, which will create financial and economic problems and several other downsides.
“But they can be overcome if there is a precise enforcement mechanism that addresses all the loopholes in the law.”
The Bahrain Chamber of Commerce and Industry and the Bahrain Businessmen’s Association also rejected the proposal.
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