A tax on remittances is being considered by the UAE Ministry of Finance, claim three bankers who have insider knowledge of the proposed plan. Almost 80% of the 8.3 million people living in the UAE are considered expats with the majority being from the Indian sub-continent, the Philippines and the United Kingdom. UAE remittances have risen almost 10% to AED 45.1 billion in the last year alone.

The UAE Ministry of Finance has circulated the plan to banks in the country and is seeking suggestions from them. Talks have been planned between the ministry and the financial institutions to discuss the plan in more detail. The bankers have asked not to be identified as this information is private. Simon Williams, the Chief Middle East economist for HSBC, has noted that this “looks like a preliminary discussion that I would not expect to lead to policy action.” Williams added “Implementation would be extraordinarily difficult, and would likely offer only very limited returns.”

The UAE’s economy has rebounded strongly since 2009 when the global crisis was at its peak and the real estate and banking sectors required government support. The non-oil economy of the UAE is scheduled to expand nearly 4.5% this year. Among the GCC nations, the UAE boasts the largest banking market with fifty-one banks operating across the country.

As it seeks to grow non-oil revenues, the government is exploring different channels. While taxes are a key source of income for any government, deciding between taxing businesses or individuals is a very tricky proposition. Some economists believe that corporate taxes often have a negative correlation to employment rates.

On the other hand, while placing a levy on remittances would not completely discourage expats from continuing to work in the UAE, it would send a mixed message. Moreover, it would strongly impact the low wage earners that regularly send their income home and already must pay hefty transaction fees to do so (whether via local banks or services such as Western Union).

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