Kuwait: Tax Plan Halted As Oil Prices Rise

Following a Budgets and Final Accounts Committee meeting on May 14, the National Assembly confirmed the revised timeline for the VAT introduction, citing a lack of technical and logistical readiness for mechanisms of work and tax calculation.

Meanwhile, Anas Khalid Al Saleh, deputy prime minister, minister of finance and acting minister of oil, said the implementation of an excise tax on select products such as tobacco, energy drinks and carbonated beverages, would go ahead as planned. The tax is expected to go before Parliament during its next session, which begins in October.

Originally, all six GCC states had agreed to implement a 5 percent VAT, as well as excise tax, by 2018. However, to date the tax has only been brought in by Saudi Arabia and the UAE.

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While no official announcement has been made by Oman, Bahrain or Qatar, all three are expected to postpone introduction of the VAT to 2019, according to media reports.

Increased oil prices discourage VAT implementation

Kuwait has among the strongest state finances in the region but is also the most oil-dependent GCC country, with hydrocarbons constituting some 60 percent of GDP.

However, recent oil price rises have made the need for tax revenues less immediate. World oil prices spiked by nearly 20 percent over the first months of 2018, up more than 40 percent over the past 12 months.

However, by postponing the reforms, Kuwait’s economy could be vulnerable to future fluctuations, prompting some to suggest that policy should not be swayed by the changing conditions in the hydrocarbons market.

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Even with high oil prices, the country’s fiscal position will take time to recover from previous losses. According to the IMF, Kuwait still requires financing to cover its fiscal deficit, which is calculated at $16.7bn, or 13.5 percent of GDP in 2018.

Introduction of the excise tax is expected to bring $663m in revenues, while the VAT would add $2bn to state coffers, equivalent to around 1.6 percent of GDP, according to State Treasury estimates.

Furthermore, Kuwait will need $100bn of additional financing over the next five years as mandated contributions to its Future Generations Fund, according to the IMF. With VAT postponed, the country must look to other finance-raising options.

 

 

Source Credit: OilPrice

 

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