Remittances Can Cause Us Harm: Protectionist Discourse in Sending Countries

There has also emerged, in some countries, the discourse that remittances ought to be curbed. The outflow of money from the sending countries is seen as a net loss for these countries and the argument goes, these monies should be minimized as much as possible, and in some cases even taxed (Hernandez, 2017).

Several countries in the Gulf Cooperation Council (GCC) have sought to curb the flow of remittances or have sought to impose taxes on these flows. While there is no consensus within the GCC on this issue, there are certainly bills and proposals that have been forwarded to pursue this issue.

This trend could be seen as a part of the effort by the GCC countries to curb the flow of money out of their countries, given the decline of world’s oil and gas prices. The taxation on remittances is seen as a way to address the budget deficits that these governments are facing (GLEM, 2016). As the GLEM report “Taxing Remittances: Consequences for Migrant populations in the GCC” points out, “Approximately 23 percent of the world’s $400 billion official remittances in 2013 came from the GCC region, totaling nearly $90 billion and making it the top remitter in the world” (p. 5). This is a very significant source of money for the receiving economies, hence the focus on making sure that this flow of money remains steady.

Gulf countries also host about 18 million migrants—who are documented—from Sri Lanka, India, Bangladeshi, Pakistan, Jordan, Egypt, and Yemen. Short-term development projects such as the Doha World Cup 2022, Dubai Expo 2020, and other projects attract temporary workers who are brought in for their completion. This creates another layer of migrants who may not be in the region for a long time, but for short periods.

Estimates by GLEM point to the average amount of remittances from each worker to be in the range of about $300 per month. The taxation money from remittances is being seen as an “investment reserve that could contribute to the domestic and economic growth and development” (p. 5).

This fear of remittances leaving the sending countries can be seen in the context of the budget deficits that some of the countries are experiencing: Saudi Arabia is facing a $38.6 billion budget deficit, and has recently tapped into sovereign wealth funds. Oman is more vulnerable to shocks to other countries, given the small size of its reserves. Across the Gulf countries, there is growing realization that there needs to be economic diversification and a pursuit of alternative resource revenues.

While none of the proposed taxes have taken effect, as of this writing, Oman was considering a 2% tax on remittances. But it was rejected in 2014. Saudi Arabia has already imposed a $52 per month per non-Saudi employee who is based in the country, as a way to address the Saudi unemployment problem. UAE proposed a similar tax in 2015, through the Federal National Council, but that proposal has not been implemented yet. Kuwait also has in the pipeline a 5% tax on remittances.

The pushback to all these efforts seems to be the labor shortages in these countries. While there is a budget deficit and dire need for increasing revenues from non-oil based sources, there is also a growing realization that imposing more taxes can cause upheaval in the labor market, with the migrant labor leaving. This could cause tremendous chaos for the local economies if the disruption is too fast or too dramatic.

Remittances Are Linked to Illegal F lows of Money

While the GLEM report discourages the use of taxation in the Gulf countries, it also points to the phenomenon of illegal flows of money that could increase should taxes be imposed (GLEM, 2016). The authors of the report warn policy makers that

Remitters would also make use of the existing and active hawala system in the region for cost-efficiency purposes. Such undocumented money transfers will not only raise serious security and policy concerns for the GCC countries but also derail efforts by international organizations and local governments to constructively document and examine remittance effects in the long run.


Hawala is a mechanism of sending money through informal networks and has existed for centuries. As a recent report from the Department of Treasury (Jost & Sandhu, n.d.) points out, there are several advantages to using a hawala type of system: cost efficiency, lack of bureaucracy, speed of transactions, and reliability. As compared to a regular bank transaction, hawala transactions are very quick and more efficient, and the sender can give a receiver a greater amount of money than through a regular bank transaction.

But given that hawala transactions are not usually conducted through legal channels or occur through manipulation of existing business practices, these are considered ‘illegal’ and are often considered part of money laundering.

However, there are other perspectives from scholars who have studied hawala that point to the crucial role that hawala plays in the flow of money in conflict and post-conflict zones. As Edwina Thomas points out,

Indeed, over the past six years in Afghanistan alone, hawaladars have facilitated the movement of hundreds of millions of dollars of “humanitarian money” to ensure the smooth running of the national democratic elections in more than three decades, the construction of hundreds of kilometres of road that had fallen into disrepair, the implementation of agricultural assistance programmes, and the building of educational facilities in a country suffering from some of the lowest literacy rates in the world, and where less than half the children aged 7-12 years are enrolled in school. Financial analysts speculate that between 500 and 2000 unregistered hawaladars exist within Afghanistan today.

(p. 83)

Her argument points to the necessity of these hawaldars in the country, where formal infrastructure such as banking, etc. does not exist.

Thomas points to the existence of such networks in Iraq and other parts of the world, where these informal networks have played a crucial role in delivering life-saving resources to people, on time.

In Indonesia, for example, hawala transactions helped in connecting people to resources as well as helping people reconnect with their family networks. She writes,

In early 2005 after the tsunami wave hit Aceh, for example, money dealers reportedly established an emergency communications system using the flexsi local mobile phone network to help migrants locate their families and arrange for the delivery of funds either to functioning bank accounts or directly to the IDP camps themselves.

(p. 85)

Thompson goes on to say that the invisible nature of these transactions is what makes them suspicious and in a post-9/11 world, these transactions have been increasingly seen as being linked to terrorist financing. She does acknowledge that this is a problem that faces hawala transactions, as if implying that all transactions are illegal or illicit.

The debate is, as it were, between the Western notions of an ‘established order’ or formal institutions that conduct transactions, or those that are ‘indigenous’ and homegrown, that cater to the local needs and are by nature informal and unregulated.

As other scholars such as Medani (2002) have pointed out, the word hawala entered the Western lexicon and imagination with the war on

Photo 6.3 A return migrant from the U.S. (who owns a weaving business)

terror and the blame game that started, in terms of who should be held responsible for the attacks. Thompson writes that the financing of the attacks was also of particular interest to those investigating these attacks (Thompson, 2008). De Goede (2003) points out how the ‘hawala discourse’ became criminalized in the aftermath of the terrorist attacks of September 11.

Remittances as a Social Obligation and Responsibility—Among Sending Countries

While the relations between the migrant sending and receiving countries are cordial, at least in the Gulf, there is a growing realization that the politicians and policy makers in these countries want to maintain cordiality. There is a shared sense of destiny and culture among the countries involved and this also creates a sense of obligation, to make sure that this long history of cordiality and diplomacy is not disturbed.

Your blood and sweat has built this country. I am so happy to see that you have played your part with dignity, togetherness and tolerance. Before coming to this meeting, I met his Highness the leader of Dubai. Somebody who has spent more than 50 years, given his whole life and vision for Dubai,

Rahul Gandhi, the President of Indian National Congress (INC), said to a group of NRIs in Dubai in January 2019 (Rahul Gandhi, 2019). Gandhi pointed out that 2019 is the ‘Year of tolerance’ in UAE. He used the moment to remind Indians present of the growing intolerance in India with the current right-wing government and its policies to alienate minority communities.

Gandhi pointed out that the work of Indian migrants is part of a long chain of migration. The migration across both countries—both ways— has been possible due to tolerance.

I want you to know that you are India’s biggest strength, not only here in Dubai; but I am speaking to every single Indian, whether in Canada, US, Europe, Africa, Middle East, I am speaking to all of you and I want to tell you that you have a played a big role in making India what it is today. I want to say clearly, that without your help, without the help of NRIs, it would be impossible for India to be where it is today.

Invoking Mahatma Gandhi, Rahul Gandhi pointed out that the fight for independence was carried out by an NRI. Gandhi talked about the importance of including the voice of the NRIs in defining the manifesto of the INC.

Photo 6.4 A return migrant from the U.S. in Oaxaca

GLEM also points to the diplomatic tensions inherent in any attempts to impose taxes on remittances. The authors write that these taxes have the potential to create diplomatic divisions in the sending countries. They say, “In Oman, for example, the government rejected the proposed tax because imposing fees will pose a problem for its existing international agreements with labor exporting countries” (p. 7). They go on to say that this form of taxation could also change the dynamics of labor and how migrant laborers may decide to move, depending on the tax environment in a particular country. This could impact the competitiveness of the labor market for the GCC and in the long term have other negative externalities, for which these countries are not prepared.

Remittances as ‘Resilience’ Builders

Some scholars have argued that remittances can, in many cases, reduce corruption. Tyburski (2012) argues that remittances mitigate corruption by increasing government accountability and providing other incentives to reform. Using data from Mexico in 2001-2007, this study shows that corruption trended downward in states receiving larger remittance sums, after controlling for political competition, divided government, and market openness. The results are robust to instrumental variable analysis testing for potential endogeneity between corruption and migration. These findings bring attention to remittances as an exogenous resource for reform-minded groups and suggest that they may operate as the converse of the resource curse.

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