Tax application in Kuwait is renewed issue that emerges on the surface from time to time. The reasons for its emergence always come to light when talking about diversification of the non-oil sources of income. Recently there has been serious debate about this issue when global oil prices dropped by about 60%, where price per barrel was above $100, to slip to about $42 currently
The problem lies in that such decline is not accidental. Yet, it occurred to continue for a long time, and as per the global expert reports, may only reverse back to normal within the next decade.
In line with this fact, the annual budgets of oil countries, including the State of Kuwait, will be vulnerable to deficit in revenues, which finance the state operating expenses, in addition to funding the state development plan.
Financing Budget Deficit
To bridge the deficit in the sources of financing the state budget, governments often resort to several alternatives. These are:
- Reducing items of state public expenditure.
- Reconsidering the government subsidy system, especially in relation to energy subsidy.
- Regulating the development projects, and focusing on the profitable projects.
- Privatizing the government entities.
- Imposing tax on companies.
- Imposing tax on individuals.
- Government borrowing.
10% Proposed Business Tax
A study conducted by the International Monetary Fund (IMF), upon the request of the Ministry of Finance, proposed an annual percentage on the business profit that is acceptable and tolerable by the business circles, to be imposed on all companies, with no exception, thus achieving justice to the categories subject thereto.
Cancelation of all Currently Applicable Taxes
Upon enforcement of the business tax law, all types of currently imposed taxes will be canceled. These are:
15% income tax on foreign companies;
2.5% Manpower support tax;
1% Zakat, and
1% contribution to Kuwait Foundation for the Advancement of Science (KFAS)
Economic Features of the Proposed Tax Bill
- Achieves justice in local application by subjecting all local companies to the tax.
- Achieves justice between local and foreign companies operating in Kuwait through equal treatment.
- Will attract foreign investment to Kuwait, where the tax rate is the least in the Gulf region, yet and localize such investment.
Generally speaking, the creation of an inclusive and fair tax system in the State of Kuwait is based on a developmental perspective, considers the requirements of globalization and open-door policy, accommodates new trends in this respect, and achieves the objectives of the developmental plans, provided that such tax system will be carefully studied, realizes the economic implications. It should also consider the impact on the state’s need to provide additional sources of income, enabling it to extend distinct public services.
IMF Team Presents the Bill to the Competent Authorities
According to the Cabinet Resolution assigning the Minister of Finance to commence implementation and preparation of studies necessary to create business tax, IMF mission concerned with the preparation of a study on the business tax bill met several entities meant with the economic affairs, during the period 10-15 September 2015. Those include: Kuwait Chamber of Commerce and Industry, and Financial and Economic Affairs Committee of the Parliament.
Business Tax Bill to Provide a Non-Oil Income of Nearly KD 1b a Year
The business tax bill aims at raising the degree of justice in the imposition of tax on business profit. The business tax may generate additional revenue of up to KD 1b a year. Although slight, compared to the total state budget, this stream of income is significant in inducing the tax system to perform its role within the framework of the overall state financial policy.
Tax Enforcement
IMF report suggests 1st April 2016 as the date when the business tax shall come into force. This means that the business tax shall apply to the profits generated in the state fiscal year commencing 1st April 2016.