UAE considers imposing tax on remittances abroad - sources
DUBAI/ABU DHABI, Sept 27 (Reuters) - The United Arab Emirates is considering whether to impose a tax on the billions of dollars which foreign guest workers send back to their home countries every year, government and banking sources said on Friday.
It is unclear whether authorities will proceed with the tax, which would mark a major shift of policy, potentially raising costs in the economy and reducing the supply of foreign labour on which much of the UAE's boom is based.
But the proposal reflects growing concern in the UAE and other oil-rich Gulf countries that they may be becoming too dependent on foreign workers and are losing too much of their wealth in the form of remittances abroad.
A circular discussing the proposal and requesting feedback was sent to some banks and financial institutions in the UAE, the sources said, speaking on condition of anonymity because of the sensitivity of the subject.
"It is a pilot project, in the initial stages. Based on the feedback from banks and others, a decision will be taken," said a Ministry of Finance source.
Official comment from the ministry could not be obtained.
About 80 percent of the population of roughly 8 million in the UAE, the second biggest Arab economy, are foreign citizens, many of them from south and southeast Asia. They fill almost all strenuous or relatively low-paying jobs in industries such as construction and services.
Employees in the UAE transferred a net 45.1 billion dirhams ($12.3 billion) out of the country last year, up from 41.2 billion dirhams a year earlier, according to central bank data.
NO INCOME TAX
The UAE's efforts to diversify its economy beyond oil have been built partly on its low-tax environment - there is no income tax - so many bankers believe it will hesitate to introduce any heavy taxes.
"Remittances are key for expats in the UAE. A lot of them come here to support families back home," said one commercial banker.
"If regulations block that, the attractiveness of regions such as Dubai will be under threat. So we expect any such levies to be nominal, if they are imposed at all."
However, Gulf countries have become concerned about the vulnerability of their economies since the global financial crisis caused oil prices to plunge in 2008 and the Arab Spring uprisings hit governments elsewhere in the region during 2011.
The UAE posted a massive surplus of trade in goods and services of 244.4 billion dirhams last year, but that could quickly change if oil prices fall sharply again, making it difficult for the country to afford large outflows of money.
So officials in the Gulf have been trying to boost employment of their own citizens rather than lower-cost foreigners. The UAE's prime minister, Sheikh Mohammed bin Rashid al-Maktoum, said earlier this year that finding jobs for UAE citizens was one of the government's top priorities.
Saudi Arabia has launched a crackdown on illegal foreign workers and some officials have spoken of controlling remittances abroad, though no major new policies to restrict fund flows have been introduced. Senior officials in Kuwait and Oman have complained that too much money is flowing out in the form of foreign workers' salaries.
Abu Dhabi, the biggest emirate in the UAE, is believed to run a comfortable budget surplus but the second biggest emirate Dubai, which is coping with the aftermath of its 2009-2010 corporate debt crisis, might welcome extra revenue from a remittance tax.
(Writing by Andrew Torchia; editing by Ron Askew)