Expat tax and its impact on market economy - BY: Saeed Alfarha Al-Ghamdi

image Saeed Alfarha Al-Ghamdi
Al Madina/SG (Posted by Syed Mussarat Khalil)

ONE of the most challenging issues facing the Saudi society today is the presence of a large number of expatriate workers who came to the Kingdom following the economic boom in 1970s. Expats have become part and parcel of the Saudi society as they work in Saudi offices, firms and homes and clean the Kingdomís cities and streets as well as all public facilities such as hospitals, schools, universities and government departments.

We cannot ignore the tremendous services being rendered by expats during Haj and Umrah seasons and for the maintenance and cleaning of the two holy mosques in Makkah and Madinah. At the same time, we should commend the governmentís campaign to flush out illegal foreign workers across the country. It was essential to establish a society without violations.

The government has adopted a series of steps to improve services by applying modern information technology at the Passport Department. This has facilitated renewal of resident permits (iqamas) of expats and issuance of their exit and re-entry visas. The introduction of Muqeem and Abshir websites, the move to halt government services to defaulters and monitoring of insurance payment by employers are other major achievements toward streamlining the labor market.

However, the new expat dependent tax has created some kind of uneasiness and uncertainty in expat circles and this will have a negative impact on their productivity and the national economy. Many expats have sent their families back home leaving to falling house rents and closure of grocery stores. The new tax would force many more expat families to leave the Kingdom. It will affect the market as the expat community represents a substantial purchasing power.

These developments also raise some humanitarian issues as many foreign workers do not know any other country as they have been born and brought up in the Kingdom. Some of them started their work without any legal base under the sponsorship of their fathers.

No doubt the violators of iqama and labor regulations must be expelled from the country and the governmentís move to know the exact number of expats with effective use of information technology deserve our applause. Its massive campaign against undocumented foreigners has been successful. The move to impose expat levy enabled the state to earn a considerable amount of money in terms of revenue but it has burdened the shoulders of the private sector.

The levy will contribute to increasing prices of essential commodities and services and will negatively affect people of limited income, the retirees and the elderly who are in dire need of drivers and household servants. The difficulty to get house servants has increased their salaries. Moreover, countries like Indonesia and the Philippines have stopped sending maids and other house servants to the Kingdom citing mistreatment and delay in payment of salaries.

The governmentís Saudization program aims to replace expat workers with Saudis, solve the countryís unemployment problem and reduce the outflow of funds from the Kingdom in terms of foreign remittances, which have reached hundreds of billions of dollars annually. Itís also essential to address issues like tasattur (cover-up) business, drug smuggling and money laundering.

I donít think we have conducted any study about the negative effects of expat tax on the society and the economy and how to avoid its humanitarian damages. Small and medium enterprises (SMEs) will be the main victim of regulations imposed by the government to control expats including fees for work permit, social insurance, health insurance, iqama, exit and re-entry visa and subscription to Muqeem and Saudi Post, house rent and the expat dependent tax, which is the latest addition.

All these semi-tax expenditures would undoubtedly obstruct the Kingdomís economic growth. Economics teaches us that SMEs play a significant role in boosting the national economy anywhere in the world and any move to weaken SMEs would damage the whole economy. All countries provide necessary facilities and incentives for SMEs considering them as a basic pillar of economy.

I hope the Ministry of Labor and Social Development and the Ministry of Economy and Planning would review the new taxes to save the economy from danger. We should not impose new taxes on individuals and institutions without conducting enough feasibility studies and without studying its possible negative consequences. Such taxes in any way should not contradict with the objectives of Vision 2030 and should comply with ongoing efforts to strengthen the national economy.

Posted on Aug 09, 17 | 6:04 am