Taxes are considered as one of the most important financial policies adopted by states all over the world to achieve its financial goals as they are seen as one of the main income resources, especially with the decrease in the incomes of the oil producing countries due to the oil price drop.
Value Added Tax (VAT) is an indirect tax, which is imposed on consumption of products or services, not profits. VAT is a vehicle that nations use to raise the revenues in order to finance the State public budget. It is assessed in each phase across the supply chain. In general, the final consumer will bear the cost of VAT while businesses calculate and collect the tax and then pay the same to the government.
Based on the above, on 27 November 2016, GCC States signed Common VAT Agreement of the States of the Gulf Cooperation Council. Pursuant to the said Agreement, the six GCC States agreed to introduce the VAT at rate of 5% where each of the member States will set the implementation date.
Common VAT Agreement of the States of the Gulf Cooperation Council has come into force since Monday 1st of January 2018, after being approved by the Gulf Cooperation Council(GCC) summit in Riyadh 2015, especially that Kingdom of Saudi Arabia and United Arab Emirates decided to introduce VAT starting from 1 January 2018.
Such Agreement is expected to be adopted in the State of Kuwait starting from January 2019. Particularly that the common agreement indicates that “if 12 months elapse from the implementation of VAT by two States out of the six States, then the remaining States shall have to implement the same or otherwise, they shall be out of the Value Added Tax (VAT) scope”.
The timeframe for approving VAT Law has been set starting from October 2017 for formulation of VAT draft law in accordance with GCC agreement till November 2018 for developing the Executive Regulation of the VAT Law as below:
(Source: AL Qabas Newspaper, Edition 16001, 17th December 2017)
Companies should engage with tax consulting firms to study and evaluate the implications of VAT once adopted and to consider the internal systems that should be created either through amending the elements of the purchase and sales invoices, adopting the requested accounting systems as well as exchanging reports with the Ministry of Finance.
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