KUWAIT: "Oftentimes expatriates are hired because they add to the competitiveness of an organization.

Scaring them off with tax would only reap negative consequences, especially for the private sector," according to Mohammad, a human resources manager at a major company in Kuwait.

The possible introduction of income tax in Kuwait has sparked controversy amongst expatriates and Kuwaitis alike. Many expatriates flock to the Gulf for work because the combination of a tax-free, higher range salary offers greater financial stability than they would otherwise have in their home countries.

However, a recent Kuwait Times poll showed that 43 percent of expatriates would leave Kuwait should income tax be introduced. There is an extremely large expatriate community in Kuwait, made up of individuals working in various fields. The first, and largest, sector is made up by domestic staff, construction personnel and other unskilled workers. Given the extremely low wage bracket that they're in, it's safe to assume that they won't be reaching the reported KD 30,000 minimum income required to qualify fo
r tax payment.

The sector that may well be affected, however, is made up of the considerable workforce of skilled expatriates in the private sector. From engineering to banking, psychology to marketing, Kuwait has a large number of skilled expatriates working in a range of fields. The Kuwait Times' poll suggests, however, that the lack of tax is a major incentive for them and that should this incentive be removed, they may move elsewhere.

British expatriate Michael J. said, "Kuwait is the ideal choice for many because it is tax-free and it's known that you can save here. Dubai becomes expensive, and so does Qatar because there are so many distractions and ways to spend your entire salary each month. Kuwait isn't like that though, it's more family oriented." He added, however, "Of course, the introduction of tax would kind of cap career prospects, because once you go over that threshold, it's not so profitable anymore. Then Dubai would become a better option, because that money you'd lose in tax here could be better used in Dubai.

The tax-talk comes at a time when the issue of increasing local labor levels is being highlighted and debated. For example, Deloitte's white paper 'Never mind the reserves, what about the people?' claimed that the Middle East is facing a shortage of local talent in the energy and utilities sector.

Kenneth McKellar, partner and Middle East Energy and Resources leader at Deloitte Middle East, wrote, "The scarcity of Middle Eastern nationals in meaningful employment in the energy and utilities sector is beginning to be urgently addressed by governments in GCC countries. They compel organizations to reserve minimum quotas of nationals and funding educational and vocational programs to provide a stream of future talent for the industry.

Tax or no tax?
There are two major implications to consider regarding the possibility of expatriates being deterred by the introduction of tax. Firstly, if expatriates leave, will it prompt the government to push local initiatives to encourage the uptake of local expertise in fields currently dominated by expatriates?

Secondly, given that expatriates currently make up such a considerable proportion of the workforce in key areas, such as the energy and utilities sector, what would the consequences of their departure be? Kenneth McKellar had noted that expatriates tend to be 'transient' and are prone to moving if a better offer arises, and given the difference that paying tax would make, other offers could appear more appealing.

Mohammad, a Human Resources manager with a major company in Kuwait, said, "If the expatriates were to leave, we would have problems. Firstly, Kuwait is a small country aiming for large development goals. You need experienced professionals for such goals, and Kuwait's workforce needs more time to grow and develop more expertise. Even then, Kuwait has a small population still and not all women work.

Khalid, an engineer within the energies and utilities sector, had a similar viewpoint: "There is a huge reliance on expatriates, especially in the oil sector," he said. "They aren't at the top with regard to titles, but they are with regard to workload and responsibility.

The possibility of a reduction in expatriate employees' numbers sparking an increase in local employment is unlikely, according to Mohammad: "It's not something that happens overnight. The idea is for there to be an increase in local employment, not to replace the expatriates." He added, "Kuwait's development goals reflect many of those from countries that have already achieved them or even set precedents for them.

Hiring nationals from those countries means that you have people trained and educated in the systems being aspired to, which adds to competitiveness." Meanwhile, Khalid pointed out, "Locals are already encouraged to join our [energy and utilities] sector. The problem isn't the lack of opportunity, it's the lack of interest.

If the expatriates leave they won't be replaced by locals; in all likelihood they'll be replaced by more expatriates who don't mind the tax. But keeping them when there are tax-free opportunities elsewhere will not be easy. Unless they are of a lower caliber, I guess. But that's not really a good solution, is it?

The debate over taxes doesn't look like it's going to die down any time soon, and it's still unclear whether or not expatriates would really jump ship if it came down to it. However, Lebanese expatriate Noura who has been in Kuwait for seven years, is sure of one thing: "I wouldn't have applied at all had I known tax would be introduced.

I wouldn't leave Kuwait now - it's a hassle to relocate after having been here for so long. But I think Kuwait will be less appealing to apply to in the first place, with the most experienced hunting for the country that will reap them the best financial returns. - Kuwait times