IMPOSING a “brain drain tax” may be worth exploring given the need of governments to invest in human capital through education and skills development, according to an expert.
In an Asian Development
Blog, Calcutta-based Centre for Studies in Social Sciences Economics Professor
Saibal Kar said taxing unskilled and skilled migrant workers would lead to
higher revenues that will enable source countries to
invest more on their people.
Kar said, however, that the tax to be imposed should be a regressive exit tax where unskilled workers will have a higher tax rate than skilled workers to maximize government’s revenue collection.
“If the revenue [to be collected] supports and tops up neighborhood education and health expenditures of the families of unskilled migrants, the partial loss in remittance owing to the additional tax burden should not dissuade mobility of such workers. Eventually, the country generates more skilled individuals than it exports, leaving a greater stock of productive labor at home,” Kar said.
Kar said even if unskilled migrants pay higher exit taxes, they are usually given tax refunds at their destination depending on country-specific bilateral treaties. This is not something that long-term visa holders enjoy.
He said with these tax breaks, unskilled workers will be partly compensated for the higher tax burden. Kar stressed that these tax revenues will go to education and health programs, and projects in their home countries.
The expert said skilled migrants also usually pay more in order to work abroad. Their costs include retraining cost at the destination and appearing for qualifying examinations against a fee which can be significant.
These costs help skilled migrant workers become more acceptable to employers in rich countries which cannot easily interpret their skill types owing to differences in educational and cultural practices.
“As more skilled workers emigrate, the average skilled wage at the destination falls, squeezing the wage gap between rich and poor countries, such that only a low percentage of the highly skilled emigrate. This makes a poor base if exit tax targets the high skilled disproportionately,” Kar said.
Kar said most developing countries receive little or nothing from high-skilled migrant workers. The bulk of remittances sent by unskilled migrants are sufficient to “help developing countries efficiently manage the demand for foreign exchange.”
This, Kar said, is the case of countries such as India, the People’s Republic of China, Turkey and the Philippines, which are the top remittance-receiving countries in the world.
Between 2010 and 2013, remittances received by the Philippines increased to $24.5 billion in 2013 from $20.6 billion in 2010. This made the country the third-leading remittance-receiving country in the world.
The top remittance-receiving country is India at $70 billion in 2013, followed by China at $59.5 billion. Other top recipients were Pakistan with $14.6 billion; Bangladesh, $11 billion; and Indonesia, $7.6 billion, among others.