Enforcement of VAT system in Kuwait draws mixed reactions
‘Specific rules, legislations vital to avoid negative consequences’
KUWAIT CITY, Aug 26: Enforcement of the Value Added Tax (VAT) system, which is supposed to start from January 2018 in all GCC countries, has been met with mixed reviews in Kuwait. Many welcome the implementation of such a tax system while others reject it.
In this context, a number of auditors and specialists affirmed that imposition of tax in general is a healthy economic phenomenon which is practiced by most countries around the world. However, specific rules and legislations are necessary in order to avoid negative consequences.
Executive Director of Baitok Audit Firm Bader Al-Shamali said taxation is a good and normal economic practice especially since it enhances state revenues. However, the Gulf countries particularly Kuwait lack the suitable environment required for enforcement of taxes.
He affirmed that Gulf countries are qualified to impose taxes as it does not require technical cadres or experts, citing examples of many Gulf countries that decided to impose the tax immediately.
Al-Shamali indicated that levying VAT is the first step towards imposing heavier taxes, adding that he is expecting the Gulf countries to resort to imposing other kinds of taxes with the aim of increasing state revenues.
Consequences
He insisted that the VAT system requires laws that will minimize the negative consequences of this tax, affirming that taxation is good for the government as it will increase the state income.
However, since it will also lead to inflation, Al-Shamali urged the government to take into consideration the conditions of limited-income Kuwaiti families and expatriates especially with the recent hike in fuel prices and electricity and water charges.
Meanwhile, Deputy Head of the Board of Directors of Kuwait Economic Society Abdulwahab Al-Rasheed stressed the importance of declaring the reasons for imposing VAT, whether it is aimed for boosting state revenues or if it is in response to the pressures imposed on the state by the international economic classification bodies.
He affirmed that taxation is common in most of the countries around the world; however, citizens have to receive excellent services in return.
Al-Rasheed said Kuwait has become a debtor country due to which decisions must be studied carefully before they are issued.
He cited the example of the decision to increase the fuel prices, describing it as a wrong one because it resulted in one percent hike in the inflation rate and increased the financial burden for citizens and expatriates.
Al-Rasheed explained that enforcing this tax will bring about dangerous consequences. It is not expected to affect the rate of foreign investment in Kuwait, as it is linked with the work environment.
Challenges
Also, economic expert Fahd Al-Saqr stressed the need for all GCC countries to enforce VAT system, in consideration of the current challenges that face the GCC countries.
He said implementation of VAT requires proper plan concerning the mechanism of systems as well as establishment of a monitoring body in order to follow up and ensure precise enforcement of taxation.
Al-Saqr indicated that there are positive aspects to implementing this tax, which are – it will enhance state revenues and help rationalize consumption. However, it will not help in solving the financial crisis or dealing with the budget deficit.
He urged the government to take firm steps for confronting the widespread corruption before resorting to imposing taxes on citizens and residents.
In addition, Vice President of the Research Department at CANAR Capital Company Mohammad Ramadan insisted there is nothing wrong if Kuwait does not implement the VAT system because Kuwait’s pledge with the GCC is not a binding commitment.
He indicated about expectations for the National Assembly to reject the draft law due to the pressure such a tax will impose on the financial conditions of citizens. Ramadan clarified that the Gulf countries which implemented the VAT system or are on the verge of doing so has distinctive economic conditions that differ from those of Kuwait, stressing that enforcement of VAT might lead to reduced foreign investments.