Why tax-free salary is such a big attraction for expatriates? Well, professionals get highly paid without having to pay taxes, which means they can save more and send home a lot (though spending home may not be the priority for all). No wonder, expatriates represent around 48.1% of the total population in GCC countries. The UAE has the biggest expatriate population in the Middle East (around 80%). Qatar has around 75% of expatriate population, while Kuwait has around 70% of expatriate population. Oman has around 45% of expatriate population, while Saudi Arabia has around 33% of expatriate population.
Of course, the sustained fall in crude oil prices has severely hit the economies of GCC countries, prompting them to scout for new avenues to mop up non oil-revenue for an economy heavily reliant on oil and gas. The continuance of tax-free salary in the Gulf region has come under the scanner, as there is an increasing feeling among the Gulf nations that imposing income tax on foreign workers would offer some relief to the Gulf economies, battered by the sustained low oil price environment.
Saudi Arabia were first off the blocks to talk about imposing income tax on foreign workers, causing jitters among the expatriate population. Earlier this year, the Saudi government stated that they were mulling imposing income tax on foreign workers only to clarify later that it was only a ‘proposal’ and no final decision has been taken on the same. Saudi-based consultant Talal Malik puts things in perspective. “The allure of Gulf countries for many expatriates is how much they can save, not spend, and how much they can remit back to their countries.” Much to the relief of the expatriate population, no other country has talked about introducing income tax for foreign workers.
It’s hard to say if GCC countries will look to impose income tax on foreign workers in future. But one thing is for sure – such a move will invite a backlash of the expatriate population. Rewind to 1980s when GCC countries wanted to impose income tax during the low oil price period, but had to back down after livid foreign workers, including military contractors went on strike, grounding air force planes. It is worth recalling that GCC nations have arrived at a consensus to impose value-added-tax (VAT) from January 2018 in order to augment their non-oil revenues. But the introduction of VAT is no guarantee that income-tax will not be imposed on foreigners.
The peril of slapping income tax is that foreign workers may just pack up and return to their native countries. Such a scenario can precipitate a labor crisis and why? Well, this is largely because foreigners are still required for certain jobs where the locals lack the requisite skills. Foreign workers take up a slew of menial and clerical jobs, as locals do not find them interesting and are reluctant to take them up.
Going forward, how the crude oil prices take shape will probably decide if tax-free salary turns into a ‘reality.