Bahrain’s Parliament is preparing to vote on a 2% tax on expat remittances, aiming to strengthen the local economy. Supporters believe this step will reduce dependence on oil revenue and increase domestic cash flow. However, some fear unintended consequences for the financial sector.
The tax proposal was first introduced in February 2023. However, in January 2024, the Shura Council rejected it, citing possible risks. Critics warned that expatriates might turn to informal money transfers or cryptocurrency transactions to avoid the tax. This shift could harm Bahrain’s financial reputation.
Originally, the plan suggested a tiered tax structure:
• A 1% tax on transfers below 200 dinars
• A 2% tax on amounts between 201 and 400 dinars
• A 3% tax for transfers above 400 dinars
Some exceptions applied to investment agreements, capital transfers, and tax-exempt cases.
The Shura Council’s Financial and Economic Affairs Committee raised multiple concerns. The proposed tax could:
• Encourage illegal money transfers
• Conflict with Bahrain’s international financial agreements
• Affect the country’s reputation as a financial center
Additionally, tracking remittances through digital wallets, mobile apps, and foreign-issued cards presents a challenge. Since the draft law lacks specific penalties, enforcing it may prove difficult.
The Ministry of Finance and Central Bank of Bahrain worry about possible negative impacts. Imposing this tax might discourage foreign investment and drive skilled expatriates away. Low-wage workers may turn to unregulated money transfer methods, reducing legal financial transactions.
Next Steps and Adjustments
Despite these concerns, lawmakers remain committed to advancing the proposal. After the Shura Council’s rejection, they revised the draft to clarify unclear terms. Changes included replacing “foreigners” with “every natural foreign person” and removing vague language.
Parliament’s Financial and Economic Affairs Committee supports the updated draft, arguing that it now clearly defines its objectives.
