Kuwait told a press conference on Monday that the cabinet had approved a plan to impose a 10 percent tax on profits of companies.
The cabinet also approved a repricing of some commodities and public services, said Kuwait’s acting Finance Minister Anas al-Saleh. He said country would seek to privatise some state-owned projects, including airports, ports and some facilities of the Kuwait Petroleum Corporation (KPC). Al-Saleh did not give a timeline covering when the tax would implemented.
That Kuwait was first planning to introduce a corporate tax was first announced in December, when the ministry announced it could be part of a broad move to introduce fiscal reforms amid pressure from low oil prices.
“It’s a revenue diversification measure as they try to lower their fiscal break-even price for oil,” Jaap Meijer, managing director, equity research at Arqaam Capital told Gulf News. The break-even price for oil is pegged at $50 per barrel for Kuwait.
Gulf countries have been studying various reforms to help boost revenue and cut spending, including changes to energy subsidies. aimed at closing fiscal shortfalls created by lower oil prices. The GCC has also announced that it will introduce a value-added tax (VAT) in 2018.
“The measure stands out as a reform within the Gulf as it was widely seen that it would be VAT first and then others forms of taxation. This is a different stance with most other GCC countries focusing on subsidy reforms and spending cut backs,” said Monica Malik, chief economist with Abu Dhabi Commercial Bank.
Malik expects Kuwait government to look at subsidies on fuel and other utilities post this measure.
Oil prices have fallen from $115 in June of 2014 to almost $28 in January of this year. Prices have recovered slighty following a possible deal between Opec and non-Opec member to cut production, but concerns over Iranian production pushed the prices back below $40 on Monday.
Kuwait’s budget deficit for the 2015-16 financial year is projected to be 8.18 billion dinars ($26.94 billion).
Corporate taxes are currently levied at different rates for local and foreign companies, although most Kuwaiti companies do not presently pay taxes on income. Other charges are levied though: some firms must pay an employment tax and make mandatory contributions for zakat, or Islamic alms, and for a scientific research foundation.
Foreign firms pay a levy on commercial activities in the country at a flat rate of 15 percent, already slashed from an earlier maximum rate of 55 percent in reforms introduced in 2008.
In Decemeber, Kuwait said there was no plans under consideration to introduce an income tax for individuals.
Russian Energy Minister Alexander Novak said earlier on Monday that a global deal to freeze oil production could be signed in April and exclude Iran, which has the right to boost output after years of sanctions.
A final agreement on an output freeze to support oil prices is seen next month, possibly again in Doha, Novak said.
Saleh said he had not yet received an official invitation to any meeting in Moscow or Qatar.
Source: Gulf News