In a bid to preserve economic stability, governments in North Africa and the Middle East are already exploring new taxation systems to increase national funds and assets, according to experts at the Chamber of Commerce last Dec. 17.
Mr. Alok Chugh, a tax advisory specialist from Ernst and Young (EY) revealed that as part of the Gulf Cooperation Council (GCC), Kuwait is now making preparations to enforce value added tax (VAT) by early next year.
Kuwait Plans of Introducing Value Added Tax (VAT) in 2018
During a seminar sponsored by the International Studies Institute (ISI) in association with Ernst and Young on VAT, Mr. Alok Chugh shared that Ernst and Young provides tax advisory to GCC members and confirmed that starting early next year, new tax schemes will be imposed except on basic foodstuff, banking and educational services. He also shared that the new law on taxation will be taken to parliament for review.
Under the GCC Unified VAT agreement promulgated last April 21, 2017, which serves as the foundation of the national VAT law in all six GCC states including Kuwait, a 5 per cent GCC VAT shall be imposed on all goods and services by 2018. With Saudi Arabia and the United Arab Emirates taking the first step of implementing the new tax law starting Jan. 1, 2018, the GCC is expected to see an unprecedented reform on the taxation landscape by next year.
This development has raised questions and doubts among business leaders and new tax-payers in Kuwait and the rest of the world, who will either be directly or indirectly affected by the tax reform.
According to Mr. Chugh, there will be essential and bold regulatory changes in the State of Kuwait which includes the use of a tax registration number and update forms as mandated by the Ministry of Finance and overseen by the Tax Development Follow-up Unit (TDFU) under the Department of Inspection and Tax Claims (DIT).
Through a new tax card and business profit tax, Kuwait aims to establish new business profit taxes which will subject foreign businesses in Kuwait to a 10 per cent business profit tax in line with the proposed Business Profit Tax (BPT) law, should it be passed by the Kuwaiti Parliament. However, with the current developments in the GCC in regard to the implementation of VAT, it appears that the BPT is unlikely to be sanctioned until 2019 according to the EY representative.
Furthermore, Mr. Chugh pointed out that Kuwaiti officials are currently engaged in the execution of the economic diversification strategy, an important task in light of Kuwait’s current financial position. The economic diversification strategy aims to reduce the burdens of doing business in Kuwait through a number of economic and regulatory reforms which include the Kuwait Direct Investment Promotion Law and Institutionalized Public-Private Partnerships to help bolster Kuwait’s bid to attract foreign investors in the country and to achieve economic diversification.