End of a Welfare State? Kuwait tax on Expatriates

Red,white & green-Representative of the Kuwaiti Flag. Image Courtesy: Mohammad Abdullah
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Red,white & green-Representative of the Kuwaiti Flag. Image Courtesy: Mohammad Abdullah
Red,white & green in the Kuwait city picture representing the Kuwaiti Flag. Image Courtesy: Mohammad Abdullah

According to recent media reports from Kuwait, the Kuwait tax on expatriates will see an exponential increase. This has triggered protests from Kuwait’s labour union which is against the government decision to deport one million expatriates from the country over the next ten years.

State Minister for Cabinet Affairs Sheikh Mohammad Abdullah Al-Sabah said in a statement released to the press that the government has sent a draft law to Kuwait’s legislature seeking to raise public service charges for expatriates.

The Minister further added that the draft proposal is in keeping with the Kuwaiti Constitution.“The state pays KD 6 billion (USD 14 billion) to subsidize public services including electricity and water, while only KD 2 billion of it is the average share of Kuwaitis.”

He also termed the remaining KD 4 billion, a cost which the government bears for services used by expatriates, “a burden on the state.” The Minister reteirated that all GCC states have raised their taxes on expatriates, but that Kuwait has (so far) restrained from doing so, because of a Kuwaiti law which prohibits unilateral decisions without legislation.

Sheikh Mohammad Abdullah Al-Sabah’s statements come at a time when speculation is rising that the Kuwaiti government would deport large numbers of expatriates. But Undersecretary Assistant for Traffic Affairs in the Interior Ministry, Major General Abdulfattah Al-Ali, said that only 213 expats were deported in the past few days, and only on account of, serious traffic offenses.

The Minister of Social Affairs and Labour Thekra al-Rasheedi said Kuwait plans to deport around 100,000 expatriates per year for the next 10 years to reduce the number of foreigners by one million. The Minister says the annual deportation plan is chiefly going to target ‘marginal labor forces’ or workers who usually accept menial jobs and reside in Kuwait without valid visas. Ministries are considering the possibility of creating an “Amnesty period” to allow expat residents to either leave Kuwait, or obtain new visas without paying additional fines.

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Anatomy of an oil-based welfare state:

Kuwait has always been an oil-rich welfare state. According to a study by Laura El-Katiri, Bassam Fattouh and Paul Segal entitled Anatomy of an oil-based welfare state: Rent distribution in Kuwait it has used more of its oil income to provide higher standards of living for Kuwaiti citizens — as well as for non-Kuwaiti expatriates. Oil has for the most part, led Kuwait to become an egalitarian society based on an extensive distribution system that provides Kuwaiti residents with essential free services as healthcare, education and social security.

An important factor is that Kuwait’s wealth, unlike many other countries, has been historically used to benefit it’s citizens and non-citizen residents. This has allowed it to become a role model for other welfare states. However, Kuwait’s policies of distributing these benefits in an uncoordinated, ad-hoc manner, eventually led to organisational and management inefficiencies. These include long-term use of subsidies for energy and utilities leading to misallocation of resources with huge, concomitant financial losses.

Kuwait was the first country (1953) to set up a Social Welfare function. This remarkable decision is attributed to the most revered ruler of Kuwait, Sheikh Abdullah Al Salem Al Sabah. In his wisdom, he apparently decided that the money should be set aside for the long-term welfare of the people of Kuwait.

“It appears that, on one hand, the new oil welfare state has succeeded in modernizing life and bettering the human condition of its small population. Yet, on the other hand, this form of extensive oil-welfarism has in itself generated certain conditions which appear to have some-what weakened the capacities of these societies to achieve genuine development. In other words, it has failed to stimulate the development of productive social forces and other supportive infrastructural conditions from within society itself.”  — The emergence of the oil welfare state: The case of Kuwait

In the long term and especially in the current scenario, widespread mismanagement and inefficiencies in the distribution of the country’s wealth, is perhaps what has led to the consideration of such draconian measures. It is a case-study for the other oil-rich states in the region, regarding the creation of a productive human resource development, along with viable social welfare functions for citizens and expatriates alike.

Top 10 Countries from different regions by Amrtya Sen Social Welfare Function 

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