IMF Urges Kuwait To Press Ahead With VAT

by Lorys Charalambous, Tax-News.com, Cyprus

16 November 2017

The International Monetary Fund (IMF) has urged authorities in Kuwait to push ahead with the introduction of the harmonized GCC value-added tax, having fallen behind the United Arab Emirates and Saudi Arabia, which are introducing VAT from January 1, 2018.

Implementation of a harmonized five percent VAT has been agreed by the six-member GCC bloc but four of members – Kuwait, Qatar, Bahrain, and Oman – have yet to confirm when the regime will be introduced.

Earlier this year, it emerged that despite approval by Kuwait's Cabinet of draft legislation to introduce value-added tax, several Kuwaiti lawmakers had vowed to block the introduction of the five percent levy, objecting both to the underlying principle of the levy and to the possibility that it would enrich companies and traders whilst "impoverishing" Kuwaiti citizens. The regime is still awaiting approval.

The IMF suggested that Kuwait should provision for potentially "lower-for-longer" oil prices, recommending that authorities should seek to streamline government spending now, while also diversifying the revenue base.

"Considering the very high susceptibility of government revenue to oil price fluctuations, the introduction of new taxes and the planned repricing of government services will be important to create a larger non-oil revenue base," it said. "Given the complexity and scope of the VAT and excise reforms, the mission encourages the authorities to speed up the preparatory work to avoid implementation delays. These reforms should also be accompanied by efforts to build tax administration capacity, to maximize the revenue impact of the measures."

It added that "reform aimed at broadening the business profit tax base to encompass all enterprises operating in Kuwait would also help enhance non-oil revenue while leveling the playing field."

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